Response to consultation on tick-sizes for third country instruments (amending RTS 11)

Published: - Updated:

Created: 07 September 2018

The ESMA initiative to amend RTS 11 to account for trading activity of third country instruments outside the Union is welcomed by FESE. We consider that option d) may strike a reasonable balance between the regulatory objectives of harmonising tick sizes for non-EU shares across the EU, avoiding competitive distortions between the EU and third countries, as well as within the EU, and establishing a workable and efficient process. However, we consider that targeted amendments to this option are required to effectively deliver on these objectives.

In our response, FESE therefore suggest modifications to option d) with regard to:

  • the scope of third country instruments,
  • data collection, and
  • the process for coordination and information between regulators.

In order to maintain a level playing field between EU and non-EU venues, FESE supports that where the legal headquarter of the issuer is established in or the main pool of liquidity is located in third countries following the EU tick size regime, NCAs and trading venues in the Union should use the liquidity bands applied in these third countries.

FESE considers that the MiFID II/MiFIR tick size regime will need to be further assessed over time be-fore clear conclusions regarding its impact can be drawn. The impact of the tick size regime is likely to differ between markets and effects should therefore be analysed both at a European and local level.

In light of the present matter of tick size regime on trading venues for third country instruments, FESE would also like to reiterate the need to apply the tick size regime consistently and as soon as possible to all possible execution venues. The artificially wide tick sizes for third country instruments are not only a case of competitive disadvantage for trading venues in the Union versus non-EU trading venues, but also reflects the unlevelled playing field within the EU.
Systematic internalisers are currently not subject to the tick size regime and can easily unfairly compete with regulated markets and multilateral trading facilities on the basis of price improvements which are not possible on the latter due to large tick sizes. We therefore urge regulators and policy makers to ensure that Systematic internalisers are not only required to comply with the tick size regime for orders up to standard market size, but are fully captured by the tick size regime irrespective of the order size.

Regarding implementation of the tick size regime, FESE considers that there are several issues that should be addressed. These issues currently prevent the goal of a harmonised tick size regime from being achieved and are outlined in our response.

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