ESMA proposes SI tick size changes to even playing field

ESMA changes to the SI tick size show MiFID II is the gift that keeps on giving.

Europe’s markets watchdog has proposed last minute changes to the systematic internaliser (SI) tick size regime, in a bid to level the playing field for buying and selling shares on-exchange.

The European Securities and Markets Authority (ESMA) has opened a public consultation proposing shares traded privately inside banks should be in the same price increments as on public exchanges.

“For equity instruments subject to the minimum tick size regime under MiFID II… SI quotes would only be considered to reflect the prevailing market conditions where those quotes reflect the price increments applicable to EU trading venues trading the same instruments,” ESMA stated.

Exchanges and trading platforms have been lobbying European regulators to revise the SI regime, which in their view, only incentivises off-venue trading.

“A competitive disadvantage would be created for trading venues compared to SIs if only on-venue orders and quotes have to comply with the minimum tick size regime.

“This could result in volumes currently traded on trading venues moving to OTC execution,” added ESMA.

In addition, the vast number of banks registering as SI’s could further put exchanges at the back of the queue.

ESMA has tried to level the playing field between banks and exchanges, and has recently cracked down on certain ‘loopholes’ which allowed different banks to link up with one another to create a virtual rival to the exchanges.

Despite the last minute change to the SI regime, it raises concerns among market participants about what other amendments could be made, despite the rules set to come into force in 53 days.

“The industry needs regulatory certainty to justify the massive investment it takes to upgrade all of its systems, and yet here we are with the second last minute consultation on the SI regime,” said Christian Voigt, senior regulatory adviser, Fidessa.

“If this is the first sign of the snagging list from the regulation builders perhaps I should hurry up and get my wish list of MiFID II ‘quick fixes’ in the mail. If the SI regime can be changed, then why not re-open the discussion on DEA, dark pools, research, etc?”