The European Securities and Markets Authority (ESMA) has today updated its Questions and Answers regarding market structures issues under the Market in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).

ESMA has introduced changes to one of its Q&A on tick sizes to reflect the amendment introduced in Article 49(1) of MiFID II which excludes Large in Scale transactions from the mandatory tick size regime.

The amended Q&A say:

Does the minimum tick size regime under Article 49 of MiFID II apply to all orders for which a pre-trade transparency waiver can be granted in accordance with Article 4 of MiFIR?

Answer

Article 49 of MiFID II requires trading venues to adopt minimum tick sizes in relation to equity and certain equity-like instruments. RTS 11 specifies the minimum tick size regime which applies to those instruments depending on their liquidity and price level. As the aim of the minimum tick size regime is to ensure the orderly functioning of the market, its application extends to all orders submitted to trading venues, including, for example, limit orders resting on an order book and, orders held in an order management system.

However, the minimum tick size regime does not apply to the following:

  • transactions executed in systems that match orders on the basis of a reference price as per Article 4(1)(a) of MiFIR;
  • negotiated transactions as per Article 4(1)(b) of MiFIR; and
  • large-in-scale orders that are matched at the mid-point of bid and offer prices – as per Art 49(1) of MiFID, as amended.

The purpose of ESMA’s Q&As on market structures issues is to promote common supervisory approaches and practices in the application of MiFID II and MiFIR. They provide responses to questions posed by the general public and by market participants in relation to the practical application of level 1 and level 2 provisions to transparency and market structures issues.

ESMA will continue to develop these Q&As in the coming months and will review and update them where required.