Regulation (EU) 2024/791 of the European Parliament and of the Council of 28 February 2024 amending Regulation (EU) No 600/2014 as regards enhancing data transparency, removing obstacles to the emergence of consolidated tapes, optimising the trading obligations and prohibiting receiving payment for order flow (Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the European Commission,

After transmission of the draft legislative act to the national parliaments,

Having regard to the opinion of the European Central Bank (1),

Having regard to the opinion of the European Economic and Social Committee (2),

Acting in accordance with the ordinary legislative procedure (3),

Whereas:

(1) In its communication of 24 September 2020 entitled ‘A Capital Markets Union for people and businesses – new action plan’ (‘CMU Action Plan’), the Commission announced its intention to table a legislative proposal to create a continuous electronic live data stream, which was meant to provide a comprehensive view of the prices and the volume of equity and equity-like financial instruments traded throughout the Union across trading venues (‘consolidated tape’). In its conclusions of 2 December 2020 on the Commission’s CMU Action Plan, the Council encouraged the Commission to stimulate more investment activity inside the Union by enhancing data availability and transparency by further assessing how to tackle the barriers to establishing a consolidated tape in the Union.

(2) In its communication of 19 January 2021 entitled ‘The European economic and financial system: fostering openness, strength and resilience’, the Commission confirmed its intention to improve, simplify and further harmonise the securities markets transparency framework, as part of the review of Directive 2014/65/EU of the European Parliament and of the Council (4) and of Regulation (EU) No 600/2014 of the European Parliament and of the Council (5). As part of efforts to strengthen the international role of the euro, the Commission also announced that such a reform would include the design and implementation of a consolidated tape, in particular for corporate bond issuances, to increase secondary trading in euro-denominated debt instruments.

(3) Regulation (EU) No 600/2014 provides a legislative framework for consolidated tape providers (CTPs), for both equity and non-equity instruments. Those CTPs are currently responsible for collecting from trading venues and approved publication arrangements (APAs) trade reports for financial instruments and consolidating them into a continuous electronic live data stream, which provides price and volume data per financial instrument. The idea behind the introduction of CTPs was that data from trading venues and APAs would be made available to the public in a consolidated manner, including all of the Union’s trading markets, using identical data tags, formats and user interfaces.

(4) To date, however, no supervised entity has applied for authorisation to act as a CTP. In its report of 5 December 2019 on the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments, the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (6) identified three main obstacles that have prevented supervised entities from applying for authorisation as a CTP: first, a lack of clarity as to how a CTP is to obtain data from the various execution venues or from the data reporting service providers concerned; second, insufficient quality in terms of harmonisation of the data reported by those execution venues to allow for a cost-efficient consolidation; and third, a lack of commercial incentives to apply for authorisation as a CTP. It is therefore necessary to remove those obstacles. Such removal requires, first, that all trading venues and APAs (‘data contributors’) transmit data to CTPs, and, second, an improvement of the data quality by harmonising the data reports that data contributors are to submit to the data centres of CTPs.

(5) Article 1(7) of Directive 2014/65/EU requires systems and facilities in which multiple third-party buying and selling trading interests in financial instruments are able to interact (‘multilateral systems’) to operate in accordance with the requirements concerning regulated markets, multilateral trading facilities (MTFs) or organised trading facilities (OTFs). The inclusion of that requirement within the scope of Directive 2014/65/EU has left room for varying interpretations of that requirement, which has led to an uneven playing field between multilateral systems that are authorised as a regulated market, an MTF or an OTF and multilateral systems that are not authorised as such. In order to ensure a uniform application of that requirement, it should be moved from Directive 2014/65/EU to Regulation (EU) No 600/2014.

(6) Dark trading is trading without pre-trade transparency, using the waiver laid down in Article 4(1), point (a), of Regulation (EU) No 600/2014 (‘reference price waiver’) and the waiver laid down in Article 4(1), point (b)(i), of that Regulation (‘negotiated trade waiver’). The use of both waivers is capped by the double volume cap, which is a mechanism that limits the level of dark trading to a certain proportion of total trading in an equity instrument. First, the level of dark trading in an equity instrument on an individual venue is not to exceed 4 % of the total volume of trading in that instrument in the Union. When that threshold is exceeded, dark trading in that instrument on that venue is suspended. Second, the level of dark trading in an equity instrument in the Union is not to exceed 8 % of the total volume of trading in that instrument in the Union. When that second threshold is exceeded, all dark trading under both waivers in that instrument is suspended. The first threshold, namely the venue-specific threshold, leaves room for the continued use of those waivers on other venues on which trading in that equity instrument is not yet suspended, until the second threshold, namely the Union-wide threshold, is exceeded. That makes monitoring the levels of dark trading and enforcing the suspension more complex. To simplify the double volume cap while keeping its effectiveness, the new single volume cap should rely solely on a Union-wide threshold set at 7 %, which should apply only to trading under the reference price waiver and not to trading under the negotiated trade waiver. ESMA should regularly assess the volume-cap threshold, taking into account financial stability considerations, international best practices, the competitiveness of Union firms, the significance of the market impact and the efficiency of price formation, and should submit a report with its suggestions to the Commission. On that basis, the Commission should be empowered to adjust the volume-cap threshold by means of delegated acts. ESMA should also assess the appropriateness of the volume cap and whether it is necessary to remove it or to extend it to other trading systems or execution venues which derive their prices from a reference price.

(7) Article 8 of Regulation (EU) No 600/2014 sets out pre-trade transparency requirements for market operators and investment firms operating a trading venue in respect of non-equity instruments, regardless of the trading system. The benefits of those requirements have been clear for such market operators and investment firms that operate a central limit order book or a periodic auction trading system, where bids and offers are anonymous, firm and truly multilateral. Other trading systems, in particular voice trading and request-for-quote systems, provide requestors with tailor-made quotes, which have marginal informational value to other market participants. To reduce the regulatory burden imposed on such market operators and investment firms and to simplify the applicable waivers, the requirement to publish firm or indicative quotes should apply only to central limit order books and periodic auction trading systems. In order to accommodate for limiting the pre-trade transparency to central limit order books and periodic auction trading systems, the requirements applicable to waivers as referred to in Article 9 of Regulation (EU) No 600/2014 should be amended. The waiver that is available above a size specific to the financial instrument for request-for-quote systems and for voice trading systems should be removed.

(8) Currently, derivatives fall within the scope of the non-equity transparency regime, which combines different types of financial instruments with mostly securities (bonds) on the one hand and mostly contracts (derivatives) on the other. Transparency for non-equity instruments, as well as for equity instruments, relies on the concept of ‘traded on a trading venue’. For certain derivatives, that concept has proven to be problematic due to their lack of fungibility and the lack of appropriate identifying reference data. For that reason, the scope of derivatives transparency should rely not on the concept of ‘traded on a trading venue’, but, rather, on predefined characteristics of the derivatives. The derivatives should be subject to the transparency requirements regardless of whether they are traded on or off venue. The transparency requirements should apply to derivatives that are sufficiently standardised for the data published in relation to them to be meaningful for market participants beyond the contracting parties. This means that all exchange-traded derivatives should remain subject to the transparency requirements. Other derivatives should be subject to the transparency requirements where they fall within the scope of the clearing obligation under Regulation (EU) No 648/2012 of the European Parliament and of the Council (7) (‘clearing obligation’), for which a degree of standardisation is a prerequisite, and are centrally cleared. This ensures that transactions that are considered to be unsuitable for the clearing obligation, such as intragroup transactions, are not subject to the transparency requirements. In particular, only interest rate derivatives with the most standardised and liquid currency and tenor combinations should fall within the scope of the transparency requirements. Furthermore, recent market events have shown that a lack of transparency in certain credit default swaps referencing global systemically important banks or referencing an index comprising such banks might fuel speculation on the creditworthiness of such banks. Such credit default swaps should therefore also be subject to the transparency requirements where they are centrally cleared even where they are not subject to the clearing obligation. The Commission should be empowered to amend the conditions for determining the derivatives that are to be subject to the transparency requirements where market developments so require.

(9) Article 10 of Regulation (EU) No 600/2014 contains requirements for trading venues to make public information related to transactions in non-equity instruments, including price and volume. Article 11 of that Regulation specifies where it is possible for competent authorities to authorise the deferred publication of those details. Such deferred publication is allowed where a transaction is above the large-in-scale size threshold, is in an instrument for which there is no liquid market, or, where the transaction involves liquidity providers, is above the size specific to the financial instrument threshold. Competent authorities have discretion to determine the duration of the deferrals and the details of the transactions to be deferred. That discretion has led to differing practices among the Member States and to an ineffective and complex post-trade transparency regime. To ensure transparency with regard to all types of investors, it is necessary to harmonise the deferral regime at Union level, to remove discretion at national level and to facilitate data consolidation. It is therefore appropriate to reinforce post-trade transparency requirements by removing the discretion of competent authorities.

(10) To ensure an adequate level of transparency, the price and the volume of transactions executed in respect of bonds, structured finance products and emission allowances should be made public as close to real time as technically possible. In order not to expose liquidity providers in such transactions to undue risk, it should be possible to defer the publication of certain details of the transactions. The categories of transactions for which deferrals are allowed should be determined taking into account the size of the transactions and the liquidity of the financial instruments concerned. The exact details of the deferral regime should be determined by means of regulatory technical standards, which should be regularly reviewed in order to gradually decrease the applicable deferral duration. For the purpose of having a more stable transparency regime, a static determination of liquidity for bonds, structured finance products and emission allowances, or classes thereof, is needed. The draft regulatory technical standards developed by ESMA should specify which issuance sizes correspond to a liquid or illiquid market in bonds, or classes thereof, until their maturity, from which transaction size in either a liquid or illiquid bond a deferral can be applied, and the duration of such a deferral in accordance with this Regulation. In order to have an appropriate level of transparency for covered bonds, it is appropriate for the issuance size of such bonds to be determined in accordance with the criteria laid down in Commission Delegated Regulation (EU) 2015/61 (8). With regard to structured finance products and emission allowances, ESMA should develop draft regulatory technical standards to determine the instruments or the classes that have a liquid or illiquid market. ESMA should establish the applicable categories and the duration of the deferrals. It is appropriate for ESMA to also apply the determination of liquid and illiquid markets in bonds, emission allowances and structured finance products to the pre-trade transparency waiver. It is not appropriate for that determination to rely on frequent assessments. Competent authorities should have the power to extend the period of deferred publication of the details of transactions executed in respect of the sovereign debt instruments issued by their respective Member State. It is appropriate for such an extension to be applicable throughout the Union. With regard to transactions in sovereign debt instruments not issued by Members States, decisions on such extensions should be taken by ESMA.

(11) The heterogeneity of derivatives should result in a deferral regime that is separate from those for other non-equity instruments. While the duration of deferrals should be determined by means of regulatory technical standards on the basis of the size of the transaction and liquidity of the class of derivative, ESMA should determine which instruments or classes are liquid, which are illiquid, and above which size of transaction it is possible to defer the publication of the details of the transaction. It is appropriate for ESMA to also apply the determination of liquid and illiquid markets to the pre-trade transparency waivers.

(12) Article 13 of Regulation (EU) No 600/2014 requires market operators and investment firms operating a trading venue to make the pre-trade and post-trade information on transactions in financial instruments available to the public on a reasonable commercial basis and to ensure non-discriminatory access to that information. That Article has, however, not delivered on its objectives. The information provided by trading venues, APAs and systematic internalisers on a reasonable commercial basis does not enable users to understand data policies and how the price for data is set. On 18 August 2021, ESMA issued guidelines explaining how the concept of ‘reasonable commercial basis’ should be applied. Those guidelines should be converted to legal obligations and strengthened in order to ensure that it is not possible for trading venues, APAs, CTPs and systematic internalisers to charge for data according to the value that the data represents to individual users. Due to the high level of detail required to specify the concept of ‘reasonable commercial basis’ and the required flexibility in amending the applicable rules on the basis of the fast-changing data landscape, ESMA should be empowered to develop draft regulatory technical standards specifying how the concept of ‘reasonable commercial basis’ is to be applied, thereby further strengthening the harmonised and consistent application of Article 13 of Regulation (EU) No 600/2014. Furthermore, ESMA should monitor and assess developments in data policies and price-setting in the market. ESMA should update those draft regulatory technical standards on the basis of its assessment.

(13) In order to reinforce the price formation process and to maintain a level playing field between trading venues and systematic internalisers, Article 14 of Regulation (EU) No 600/2014 requires systematic internalisers to make public all quotes in equity instruments where those systematic internalisers deal in sizes of up to the standard market size. Systematic internalisers are free to decide at which sizes they quote, provided that they quote at a minimum size of 10 % of the standard market size. That possibility, however, has led to very low levels of pre-trade transparency provided by systematic internalisers in equity instruments, and has hampered the achievement of a level playing field. It is therefore necessary to require systematic internalisers to make public firm quotes on the basis of a minimum quote size to be determined by means of regulatory technical standards. When developing those regulatory technical standards, it is appropriate for ESMA to consider the following objectives: increasing the pre-trade transparency of equity instruments for the benefit of end-investors; maintaining a level playing field between trading venues and systematic internalisers; providing end investors with an adequate choice of trading options; and ensuring that the trading landscape in the Union remains attractive and competitive both domestically and internationally. In order to increase the competitiveness of systematic internalisers, they should be allowed to match orders of any size at midpoint.

(14) Articles 18 and 19 of Regulation (EU) No 600/2014 lay down pre-trade transparency requirements for systematic internalisers in respect of non-equity instruments when providing firm or indicative quotes to their clients. Those quotes are tailored to individual clients and are of marginal informational value to other clients. Therefore, those requirements should be removed. Nevertheless, systematic internalisers might fulfil pre-trade transparency requirements on a voluntary basis, for example to address needs of their retail clients.