The European Securities and Markets Authority (ESMA) has requested feedback on its trading obligation for liquid over-the-counter (OTC) derivatives.
The trading obligation will move OTC-traded derivatives that are considered liquid, to regulated market venues (RM), multilateral trading facilities (MTF), or organised trading facilities (OTF).
A venue test and a liquidity test will be used to determine whether a derivative will be subject to the trading obligation under MiFIR rules.
The liquidity test, according to ESMA’s discussion paper, will assess the frequency, size of trades, number of market participants and average size of spreads.
ESMA explained the trading obligation is to increase market transparency and integrity, and the consultation is to gain input on the standardisation of the rule.
The consultation will be open until 21 November this year, and ESMA will use the feedback for implementation and determining which derivatives will be subject to the rules.
The rules are to be implemented from 3 January next year, and subsequently phased in by 9 May 2019.