EUROPEAN UNION: European Commission response to ESMA RTS on transparency requirement

Monday April 25 2016

The European Commission has written to ESMA in response to their draft regulatory technical standards on transparency requirements in respect of bonds, structured finance products emission allowances and derivatives, submitted in September 2015.

The draft RTS laid down criteria for when these instruments are considered to be liquid and set out methods for calculating the thresholds above which waivers or deferrals may be granted.

While the European Commission were broadly supportive of the ESMA proposals they proposed amendments in a few areas.

Under MiFIR a market for a financial instrument is only considered a ‘liquid market’ when there are ready and willing buyers on a continuous basis. While ESMA considered 2 trades per day as sufficient to reflect the existence of ready and willing buyers, the Commission feels that such a ‘liquidity’ standard might identify too many ISIN’s as liquid instruments.

The Commission has proposed an amendment to align the definition of a ‘liquid’ market for bonds to that which prevails for all other non-equity instruments, where a liquid market is only assumed once a financial instrument trades at least 10 or 15 times. It proposes to achieve this alignment in 4 stages over a 4 year period.

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