ESMA_QA_2306
Status: ✅ Answer Published
Link to ESMA Q&A tool: https://www.esma.europa.eu/publications-data/questions-answers/2306
Regulatory Context
Regulation : MIFIR
Level 1 Regulation: Markets in Financial Instruments Regulation (MiFIR) Regulation (EU) No 600/2014- Secondary Markets
Level 2 Regulation: Regulation 2017/583 - RTS on transparency requirements in respect of non-equity financial instruments (RTS 2)
Level 3 Regulation: No information available
Topic: Non-equity transparency
Subject Matter: Questions related to package orders/transactions
Question
Submission Date: 16 October 2024
[ESMA 70-872942901-35 MiFIR transparency Q&A, Q&A 4.4]
a) How is the requirement for a package order that ‘Each component of the transactions bears meaningful economic or financial risk related to all the other components’ to be interpreted? b) Can package orders also include equity instruments? If yes, how is pre- and post-trade transparency applied? c) When does an investment firm apply the systematic internaliser obligations on a package order level? d) How should systematic internalisers determine whether package orders which are not liquid as a whole are subject to the transparency obligations in non-equity instruments under Article 18(1) or 18(2) of MiFIR? e) Which party to a package transaction is required to make the transactions public via an APA? f) Can package orders (Article 2(1)(49)(b) of MiFIR) also include instruments that are not admitted to trading or traded on a venue? g) Where an investment firm buys a newly issued bond in the primary market as the result of an allocation and funds its investment by selling another bond to the lead manager of the issuance, simultaneously with and contingent upon the investment in the new issue, would this qualify as a package order for the purpose of pre-trade transparency?
ESMA Answer
Answer Date: 16-10-2024
a) The requirement of meaningful economic and financial risk related to all the other components (mefrroc) aims at ensuring that only components that are economically and financially related can constitute a package order, and to avoid that components that are not economically or financially related in a meaningful manner are declared as a package order with the main objective of benefitting from the transparency regime for package orders. ESMA expects trading venues and market participants trading packages to document how the meffroc requirement is met, either in the contract specifications for packages traded on trading venues or on a package-by-package basis in case of OTC-transactions.b) No they cannot. Package orders have to be exclusively composed of non-equity instruments. The waivers for packages are available under Article 9 of MiFIR, which cover only non-equity instruments.c) For pre-trade transparency obligations to apply at package order level, including for an exchange for physical, an investment firm must be a systematic internaliser in all financial instrument components of the order. Where an investment firm is prompted for a quote for a package order for which it is a systematic internaliser only for some components, the investment firm can decide either to provide a firm quote for the whole package or only for the components for which it is a systematic internaliser.d) Article 18(2) of MiFIR allows for systematic internalisers to waive transparency obligations in non-liquid instruments provided the conditions set out in Article 9(1) of MiFIR are met. When a package order contains at least one component that does not have a liquid market and the package order as a whole has not a liquid market, it will be eligible for transparency waivers under Article 18(2) of MiFIR. When the package has only liquid components, the transparency obligations for liquid instruments under Article 18(1) of MiFIR will apply.e) Yes, the definition of package orders in Article 2(1)(49)(b) of MiFIR, does not specify the method of execution of the different legs of the package. ESMA is therefore of the view that, as long as the order meets all conditions under Article 2(1)(49)(b) of MiFIR, the different components of the package can be traded on different venues or OTC.f) No. Package orders as defined in Article 2(1)(49) of MiFIR can only be composed of instruments that are admitted to trading or traded on a trading venue.g) No. Since primary transactions are not subject to transparency (see General Q&A 4 on transparency issues), they should not be considered when assessing whether components executed together qualify as a package order.
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