5. Systematic Internalisers (SIs)

5. Systematic Internalisers (SIs)

Who should read this chapter?

This chapter is relevant to firms that operate, or may seek to operate, an SI.

It may also be of interest to direct and indirect clients of SIs such as investment banks, interdealer brokers, high frequency traders, and investment managers.

Introduction

MiFID II retains the SI regime. However, it introduces two key changes: the expansion of instruments within the scope of the regime; and specific pre-trade transparency requirements for the trading of bonds and derivatives. Transparency requirements are discussed in Chapter 6.

Proposed detailed rules on these matters and others have been set out by ESMA in two draft RTSs: RTS 1[1] and RTS 2[2]. Aspects of the SI regime will also be included in delegated acts.

Firms that exceed the SI thresholds (which will be set out in the delegated acts) need to be aware of, and comply with, all of the relevant parts of MiFID II and the binding delegated regulations. The SI regime in MiFID was restricted to equities. MiFID II expands it to equity-like instruments, such as depositary receipts, certificates and exchange traded funds, and non-equity instruments such as bonds, derivatives, emissions allowances and structured finance products.

The provisions in MiFID II which cover SIs are in the directly binding MiFIR, and directly applicable regulations made under it. These include the obligation to make firm public quotes, detailed aspects of the quoting obligation, and the thresholds for identifying SIs. We therefore propose to delete most of the existing provisions in the Handbook dealing with SIs.

MAR 6

MAR 6 transposes the provisions in the existing MiFID on SIs and also copies out relevant provisions in the implementing regulation. The provisions in MiFID II which cover SIs are in the directly binding MiFIR, and directly applicable regulations made under it. So in line with our general approach for directly applicable regulations, we propose to delete most of the existing MAR 6. We propose only to keep amended versions of MAR 6.1 and MAR 6.2 which cover scope and purpose, and MAR 6.4 under which firms are required to notify us if they are a SI. SIs need also to be aware of Title III of MiFIR, because it contains many of the provisions that we propose to delete from the Handbook. We propose to transpose into MAR 6.3 the requirement in article 27(3) of MiFID II for a SI to publish data on execution quality.

Q6       Do you agree with our approach to implementing the SIregime in MAR 6? If not, please give reasons why


Footnotes

  1. ^ RTS 1 - Draft regulatory technical standards on transparency requirements in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments
  2. ^ RTS 2 - Draft regulatory technical standards on transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives