Smaller stocks have had their threshold for the large in scale (LIS) waiver slashed to try and preserve liquidity, the final rules for MiFID II have revealed.
Today, the European Securities and Markets Authority (ESMA) released updated regulatory technical standards for MiFID II, MiFIR and the Central Securities Depository Regulation (CSDR) which give market participants some certainty over what the new regulatory regime will look like.
ESMA has published a 400-page document outlining key aspects of the regulations and explaining its decision making. The draft standards must now be approved by the European Commission, Parliament and Council, though are unlikely to change significantly.
Market participants will benefit from reduced thresholds for the LIS waiver for smaller stocks. The waiver is important to the buy-side in particular as it exempts block trades from the double volume caps on dark pool trading, of 4% for individual venues and 8% for the European market as a whole.
After the initial consultation paper on MiFID II, concerns were raised that the thresholds required to qualify for the LIS waiver were too high and would kill off liquidity in many less-traded stocks.
The latest paper has cut these thresholds in half in many cases. The smallest stocks, those with an average daily volume (ADV) of less than €100,000, now have an LIS threshold of €15,000, down from €30,000 in the initial proposals. Those with ADV of €100,000 to €500,000 will have a threshold of €30,000 down from €60,000.
However, the most liquid shares have seen no reduction in their threshold, with the very largest shares, those that trade €100 million or more per day needing a block worth €650,000 to qualify for the LIS waiver.
The updated rules are now available on ESMA’s website and industry professionals will be forensically examining the rules in the coming days and weeks to help figure out how the industry can adapt to the new regime. The rules are due to come into force in Q1 2017.