ESMA: Limiting the dark pools and increasing personnel

unsplash-logoMaryna Yazbeck

The European Securities and Markets Authority (ESMA) has updated its public register with the latest set of double volume cap (DVC) data under the Markets in Financial Instruments Directive (MiFID II).

Trading under the waivers for all new instruments in breach of the DVC thresholds should be suspended from 14 January 2020 to 13 July 2020. The instruments for which caps already existed from previous periods will continue to be suspended. In addition, ESMA highlights that none of the previously identified breaches of the caps proved to be incorrect thus no previously identified suspensions of trading under the waivers had to be lifted. As of 9 January 2020, there is a total of 421 instruments suspended.

MiFID II introduced the DVC to limit the amount of dark trading in equities allowed under the reference price waiver and the negotiated transaction waiver. The DVC is calculated per instrument (ISIN) based on the rolling average of trading in that instrument over the last 12 months.

The double volume cap mechanism (DVCM) aims to limit the trading under the reference price waiver and the negotiated transaction waiver for liquid instruments in an equity instrument. In particular, ESMA shall publish regularly the results of the DVCM on its website in the Double Volume Cap Register. On a temporary basis, the results of the DVCM will be published on the ESMA website in spreadsheet format.

All this fits into ESMAs agenda in order to regulate financial market even more. Yesterday, the agency just published its key priorities for the next two years.

The Strategic Orientation sets out ESMA’s future focus and objectives and reflects its expanded responsibilities and powers following the ESAs Review, and EMIR 2.2, which increases its focus on supervisory convergence, strengthens its role in building the Capital Markets Union (CMU) and gives it with more direct supervision responsibilities.
The strategy details ESMA’s planned activities, based on its enhanced role, to respond to the challenges faced by the EU, its citizens and capital markets including developing a large retail investor base to support the CMU, promoting sustainable finance and long-term oriented markets, dealing with the opportunities and risks posed by digitalisation, the EU’s role in international finance and ensuring a proportionate approach to regulation.

Steven Maijoor, ESMA Chair, said: “One of our key priorities is ensuring the consistent and coherent implementation of the Single Rulebook and, with our new powers in this area, we will adopt a risk-based approach, in cooperation with national authorities, to supervisory convergence across the EU. While we will evolve further as a direct supervisor, with responsibility for critical benchmarks and data service providers and 3rd country CCPs, prioritising those areas posing the greatest risks to our objectives. The new Strategic Orientation sets out how we will exercise our new powers, and meet our new responsibilities, in pursuit of our mission of enhancing investor protection and promoting stable and orderly financial markets in the EU.”

ESMA’s new powers and responsibilities include: enhanced supervisory convergence tools, such as peer reviews, Q&As, collective supervisory actions and EU Strategic Supervisory Priorities, Investor Protection, new tasks for 3rd country and equivalence assessments. Additionally, ESMA must embed technological innovation, sustainable finance and proportionality in its activities.

The agency has been criticised for being understaffed. An argument that seems to be heard. Personnel will grow up to 384 by 2022. According to most recent annual report (2018), the ESMA actually consists of 231 staff members. Thus, personnel is aimed to double within the next two years.