The European Securities and Markets Authority has published an opinion on frequent batch auctions and the double volume cap mechanism. The opinion follows ESMA’s report, published in June this year, reviewing firms’ use of frequent batch auctions and their potential as a means of circumventing the double volume cap and transparency requirements under the Markets in Financial Instruments Regulation and Markets in Financial Instruments Directive II.
ESMA’s opinion aims to clarify the application of pre-trade transparency requirements and price determination processes for FBA systems. In particular, it states:
- Pre-trade transparency requirements: FBA systems that initiate auction calls on the basis of the first incoming order pending a potential match should inform market participants that an auction has started. Once a potential match has been identified, ESMA expects that the trading venue would then make public the indicative price and volume of the relevant financial instrument.
- Price determination process: MiFIR acknowledges that “non-price forming” FBA systems should, in principle, operate under a waiver from pre-trade transparency requirements as they do not contribute to the price formation process; the opinion sets out three examples of non-price forming FBAs, namely: (i) systems that allow only for the submission of pegged orders and/or adjusted limit orders; (ii) systems that use price band limitations; and (iii) systems that lock in prices at the beginning of an auction. The opinion provides further guidance on instances where waivers for such systems would not be available.
View ESMA's opinion.
View details of ESMA's report on frequent batch auctions.
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