Systematic internalisers (SIs) and periodic auctions will be high on the EU financial watchdog’s agenda over the coming months, as the industry approaches the six-month mark under the MiFID II regime.
Speaking at a conference in Austria, Steven Maijoor, chair of the European Securities and Markets Authority (ESMA), outlined several areas where improvements to the implementation of MiFID II are required.
He explained that following the introduction of the double volume caps (DVCs) in March, ESMA has observed volumes shifting towards SIs and periodic auction trading systems. The surge in activity, which has seen trading volumes triple on periodic auctions since the first suspension of dark trading in March, is now being examined by ESMA, Maijoor told delegates.
“These developments have caught our attention and has triggered a concern that some periodic auction systems may be designed with the intention to circumvent the double volume cap,” he said. “Therefore, we are currently carrying out a fact-finding exercise on the different periodic auction trading systems to understand the various features of these systems.”
European regulators and heads of trading at asset management firms have expressed concerns around the surge in volumes and use periodic auctions, with many senior buy-siders recognising the need for regulatory tightening to curb broker-pereferencing and improve transparency.
Maijoor added that reviewing periodic auctions could be complex, as no two auction systems are the same, but, if deemed necessary, ESMA will take further measures and recommendations to curb activity.
ESMA’s chair also acknowledged the concerns raised by market participants about the impact of the new SI regime on the market structure.
“I share your concerns about a lack of a level playing field between SIs and trading venues that may result in changes in the market structure away from trading venues to SIs,” he said.
Earlier this year, following a fierce debate amongst major exchange groups and SI operators, ESMA submitted proposed changes to the rules to the European Commission which could force SIs to meet the tick size requirements. However, Maijoor warned that despite his sympathy for the approach, the amendment “is not for ESMA to decide.”
During the debate around SIs and the tick size requirements, SI operators fought back against ESMA’s proposal and instead advocated that EU authorities address escalating market data costs imposed by exchange operators.
Maijoor highlighted that since MiFID II has come into force ESMA has been made aware of substantial increases in the costs of market data, reaching at times up to 400% more compared to price charged prior to 3 January.