ESMA will not publish SI and liquidity calculations for bonds this November

Due to data quality issues, ESMA intends to publish calculations in February next year, covering data from 1 October to 31 December 2022.

The European Securities and Markets Authority (ESMA) will not publish the November results of the quarterly assessment of bond liquidity and the systematic internaliser (SI) regime data for bonds because of data quality issues.

ESMA will instead ensure a speedy resolution of the issue before the next publication in February next year, covering data from 1 October to 31 December 2022. However, ESMA will maintain the ongoing publication of the liquidity status of newly issued bonds.

ESMA voluntarily publishes the denominators to be used for the performance of the SI test quarterly, which includes the total number of transactions and total turnover executed in the financial instrument/class of financial instruments in the EU. Due to quality issues, ESMA will not perform the publication of the SI calculations for bonds on 1 November 2022.

As a result, investment firms will not need to perform the SI-test for bonds until ESMA publishes the results of the next SI-calculations on 1 February 2023, and the mandatory SI regime will not apply from 15 November 2022 to 14 February 2023. Investment firms will still be able to opt into the SI-regime for all financial instruments.

On 1 February 2023, SI-calculations will be resumed based on an observation period from 1 July to 31 December 2022, and investment firms will be required to perform the SI determination by 15 February 2023.

ESMA stated that it reminds reporting entities of their obligations to continue reporting transparency data also in the absence of the November publications in order to ensure that the transparency data covers trading activity necessary for the next publications.

The publication of the SI-data for equity, equity-like instruments and non-equity instruments other than bonds will not be affected, and will be published as planned on 1 November. Investment firms will be required to perform the SI test for those asset classes and comply with the related obligations by 15 November 2022 as a result.

Similarly, the publication for the purpose of the calculation of cash penalties, which includes information on the trading venue that recorded the highest volume traded for each bond instrument, will be provided by 1 November, as originally intended.

According to ESMA, given that computations are based on trading venue data only, this publication is not affected by the above mentioned quality issues detected in the reporting of the approved publication arrangement (APA).

“We are seeing in addition to deteriorating liquidity in the corporate bond market, increased price volatility, which indicates heightened market risk and makes overall trading conditions harder to execute with precision and best execution objectives,” said Vuk Magdelinic, CEO of fixed income data analytics provider, Overbond.

“In the absence of observable consolidated tape in Europe, and technical issues for ESMA in reporting post-trade data, trading desks are left to internal systems of available vendor solutions to aggregate data and discover price and liquidity in the market. This will certainly be needed for a number of years to come given the pace of regulatory reform and technical implementation difficulties.”

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