Pre-trade transparency refers to the trading venue's obligation to disclose available bid and ask orders. This not only includes the price and volume of the best bid and ask orders but also of the four next best price levels.
While Swiss law stipulates pre-trade transparency for shares only, European regulation covers other asset classes such as ETFs, structured products and bonds.
The obligation for trading venues to publish pre-trade information can be waived for:
- Reference price systems;
- Systems that exist only to formalize transactions already negotiated;
- Orders held in an order management facility of the trading venue pending disclosure;
- Orders that are large in scale compared with normal market size.
MiFID II further grants exemptions and reliefs for certain price discovery mechanisms (e.g. quote driven systems) and illiquid instruments.
In line with the different provisions for different asset classes and price discovery mechanisms, different solutions are pursued for the various trading segments and services at SIX Swiss Exchange.
|SSX trading segments||Publication of market depth 5 order book data|
|Equities||Full depth already available - no change|
|ETF / ETSF / ETP / SF / SFS / IF||Existing functionality - no change|
|CHF / Non-CHF Bonds||Existing functionality - no change|
|Structured Products||Top-of-book data only - no change|
|Service / venue||Publication of market depth 5 order book data|
|SwissAtMid||No pre-trade transparency - applying for Reference Price (mid-point) pre-trade transparency waiver. No technical change.|
|Iceberg order||No pre-trade transparency - applying for Order Management pre-trade transparency waiver. Introduction of a Minimum Size on order entry.|
|At-the-close order||No pre-trade transparency - applying for Order Management pre-trade transparency waiver. No technical change.|
|SLS||No pre-trade transparency - applying for Reference Price (mid-point) and Large In Scale pre-trade transparency waivers. No technical change.|
|SCB||No pre-trade transparency - applying for "hybrid" price discovery mechanism and/or Large in Scale pre-trade transparency waivers. No technical change.|
|XBTR||No pre-trade transparency - no change|
We believe the approach outlined is fully compliant with Swiss law and aligned to the principles of EU law but is subject to regulatory approvals. Implementation is scheduled for SMR7 (2017).
Art. 29 (paras. 1 and 3): Pre- and post-trade transparency
Art. 46 (paras. 2 and 3): Trading transparency
Art. 27: Pre-trade transparency
Art. 29: Exceptions to pre-trade and post-trade transparency
Art. 42: Pre-trade transparency (OHS)
RTS 1: Transparency requirements in respect of shares, depositary receipts, exchange-traded funds, certificates and other similar financial instruments
- RTS 2: Transparency requirements in respect of bonds, structured finance products, emission allowances and derivatives
Segment for Structured Products
A: FMIA does not extend to non-equity instruments and therefore does not require market depth 5 data. However, on a European level the obligation applies to liquid instruments that are traded on a «hybrid» price discovery system (such as the Market-Maker-Book Model for structured products on SIX Swiss Exchange) and further stipulates that certificates shall be treated as liquid instruments for transparency purposes. The approach described by SIX Swiss Exchange is therefore providing information above the level necessary under Swiss law but with slightly less granularity than expected under EU law.
A: Pre-trade transparency is waived on the basis of the Reference Price Waiver and LIS Waiver under both Swiss and European law. These waivers are being introduced under FMIA and both are planned to be utilized by SLS. Please see the section about (double) volume caps for more details about the application of the waivers
Q: What's the value of the Minimum Size?
A: The Minimum Size will be a value expressed in CHF which is equivalent to EUR 10'000 (as defined by ESMA) applying a FX snapshot rate of the previous business day. Orders in non-CHF traded shares will be translated into CHF for validation purposes by applying also a FX fixing rate of the previous business day. Unpriced iceberg orders (Market Orders) will not be supported anymore as a consequence of this change.
Q: Will the Minimum Size criteria for iceberg orders only be applied on order entry?
A: Yes. After being partially executed, the remaining size of the iceberg order may fall below the Minimum Size without being deleted/rejected by the system. However, a resting iceberg order will be deleted if the order size is decreased below the Minimum Size via amend functionality.