NEWS UPDATE
REGULATION
MiFID II periodic auctions survive
intense regulatory scrutiny
ESMA’s final report on periodic auctions say the venues are not used to evade MiFID
II dark trading rules, as fears of an outright ban are dampened.
P
eriodic auctions operating in the new trading environ-
ment under MiFID II will not be significantly con-
strained or banned outright by authorities in Europe after
months of scrutiny.
The European Securities and Markets Authority (ESMA)
confirmed in its final report on periodic auctions that
it will provide guidance to clarify its stance on certain
issues with how the venues operate, but will not take any
further action.
“ESMA has taken a considered approach to a new and
6 // TheTrade // Summer 2019
complex area of Europe’s equity market under MiFID II.
While more-detailed guidance is forthcoming, likely in the
form of a Q&A, it appears ESMA has few major concerns
about the functionalities of periodic auctions and the
venues are here to stay,” said Tim Cave, analyst at TABB
Group, in a separate report on the matter.
The European regulator confirmed that it will provide
further guidance to market participants on pre-trade
transparency and price determination processes of the
auctions, meaning that some operators may have to
make small adjustments to how their venues operate.
However, the news will likely be welcomed by the ma-
jority of the industry which has highlighted clear support
for the periodic auction mechanism throughout ESMA’s
investigation. Many respondents, particularly on the
buy-side, were outspoken about the proven benefits that
periodic auctions can provide, including an ability to show
natural liquidity, reducing costs and helping firms achieve
MiFID II best execution.
The most controversial concern with periodic auctions
has been the alleged self-matching activity and use of
auctions to avoid MiFID II’s dark trading rules, despite
counter claims from providers that the amount of
self-matching that does occur on the auctions is minimal.
The final report has now clarified that ESMA believes
“there is currently no evidence that these functionalities
are being used to formalise negotiated transactions”,
adding that the auctions are not being used to evade
MiFID I’s double volume caps (DVCs), as feared.
“ESMA stopped short of an outright ban or hard limits
over the venues. But its forthcoming guidance will force
some operators to make subtle changes to their models.
Overall, most operators of the auctions will have breathed
a sigh of relief this week,” TABB Group’s Cave concluded.