Mark Holloway
20 June 2017 2:26pm
Hi,
Each table published under RTS 28 or Art.56(6) has the following parameters:
Execution Venue / Broker
Retail client orders / Professional client orders / SFTs
Instrument class
With regards to the following fields:
© volume of client orders executed on that execution venue expressed as a percentage of total executed volume (alternative wording in annex: “Proportion of volume traded as a percentage of total in that class”);
(d) number of client orders executed on that execution venue expressed as a percentage of total executed orders (alternative wording in annex: “Proportion of orders executed as percentage of total in that class”);
what denominators should be used for these calculations i.e. what is the scope of “total in that class”? E.g. if I’m constructing an RTS 28 Execution Venue repot for Professional client order in Bonds,
should “total in that class” be all bond orders executed in the preceding year (regardless of client type or whether they were executed on an Execution Venue or transmitted to a Broker)?
or should it be all bond orders executed in the preceding year on an Execution Venue for Professional clients?
Or something else?
The fact that RTS 28 and Art.56(6) deal separately with orders executed on an Execution Venue and orders transmitted to Brokers might suggest that “total in that class” should be restricted along these lines too.
Silvano Stagni
21 June 2017 10:45am
My understanding is that ‘total in the class’ represents the total volume traded by the Financial Institution that issues the RTS 28 /art 65.6 report. And therefore the percentage indicates the percentage traded through that execution venue of all the trades sent for execution by that financial company in that class for those type of clients (Professional or Retail). Since transmitted or placed order would be the subject of an art65.6 report the percentages in that report would represent the total transmitted (or placed) to that broker in that class.
So to follow your example, you would have the percentage of all your bond orders that were executed by Top 1 venue calculated against all bond orders you had executed by execution venues during the year. The percentage of orders transmitted to (or placed with) Top 1 venue would be calculated against the total bond order transmitted to (or placed with) other venues.
This reflects my understanding and should not be construed as a legal opinion.
Hanno Klein
21 June 2017 1:02pm
Could you provide the language from ESMA where the distinction between execution venue and broker is being made for RTS 28? RTS 28 is all about venues and their quality of execution. Volume outside of venues is not relevant here I believe, i.e. does not have to be identified.
My personal view is that ESMA wants to determine the top 5 venues for each investment firm and how their a) total volume and b) number of orders towards all venues is split up across venues (top 5 plus other = 100%), across instrument classes (all classes in Annex I = 100%). This is to be shown separately for the subset of retail clients, professional clients and SFTs (no notion of 100% here).
Additionally (but only for retail and professional clients) the number of orders needs to be further divided into their types (passive + aggressive = 100%, directed + non-directed = 100%). Non-directed is implicitly given. By the way, the request for this information likely goes back to questions Q32 and Q33 from the ESMA MiFID II/MiFIR Discussion Paper from mid-2014.
Table 1 and 2 in Annex II are identical in terms of output and only differ in their scope (retail vs professional, no SFTs in either of these tables). Table 3 is only for SFTs. The total is relative to the scope of each table, i.e. across all venues and instrument classes but NOT across client types and SFT.
Mark Holloway
21 June 2017 2:13pm
Hi Silvano,
Thanks for your response.
I think your first paragraph concludes that the “total in class” should be per instrument class, per client type (Professional / Retail), per venue type (Execution Venue / Broker). (i.e. in my example: all bonds orders from Professional clients executed on Execution Venues).
However, you’ve not mentioned client type (Professional / Retail) in your second paragraph. Is that deliberate? Have I misunderstood? Please can you clarify.
Mark Holloway
21 June 2017 3:06pm
Hi Hanno,
Thanks for responding.
You’re right, RTS 28 relates to orders executed on Execution Venues.
Article 56(6) of the delegated regulation supplementing MiFID II details the obligation for firms carrying out portfolio management or reception and transmission of orders to publish the top five investment firms where they transmitted or placed client orders for execution. ESMA’s Q&A on protection topics explains this further. It talks about client orders transmitted to “brokers”.
So there are two separate requirements: (1) to report the top 5 Execution Venues on which client orders were executed; (2) to report the top 5 Brokers (or investment firms) to which client orders were transmitted (or placed).
In your final paragraph you said that the total should be across all instrument classes. I don’t think that’s correct. The wording in the tables of the RTS 28 annexe is “Proportion of volume traded as a percentage of total in that class”. It’s the total in that instrument class not across all instrument classes.
Your suggestion that the total should be relative to the scope of the table is in line with the second option I presented for my example. The scope of the table is:
asset class: Bonds;
client type: Professional
orders executed on Execution Venues (since my example is for RTS 28, not Art.56(6))
So the total would be all bond orders executed on Execution Venues for Professional clients.
Would you agree?
One final point, I don’t think that passive + aggressive would necessarily always equal 100%. There may be cases where it is neither e.g. executing in an auction, negotiated trades. In the case of Art.65(6) passive / aggressive will often be unknown and ESMA has acknowledged this in its Q&A document (see link above).
Silvano Stagni
22 June 2017 10:40am
Hanno you asked "Could you provide the language from ESMA where the distinction between execution venue and broker is being made for RTS 28?"
The distinction between orders sent for execution (to a venue) and transmitted or placed orders (to a broker) - In other words the separation between RTS 28 and art 65.6 - is in the “Investment Protection Q&A” document. The first time that response was in April 2017 but if you download the last published version you will be able to find it as well.
Hanno Klein
22 June 2017 11:05am
Silvano, I guess but wanted to confirm that you were pointing me to question 7 and its answer in the Q&A document. For the benefit of others, here is the language I was looking for which confirms the need to go beyond what is stated in RTS 28:
Question 7: If a firm provides both the services of order execution and transmission of orders to other firms (i.e. to a third party for execution), will they need to produce two sets of top-five reports, or will a single, consolidated report suffice?
Answer 7: For a given class of financial instruments, there may be many instances where the firm provides both services. If the firm is not a member of all trading venues where client orders need to be routed for execution, the firm will need to transmit some orders to other firms for execution alongside its execution activity as member of trading venues. It may also elect to use a broker instead of directly executing orders on an execution venue to minimise market impact and achieve a better outcome for the client.
ESMA considers that where firms provide both the services of order execution and reception and transmission of orders, they will need to provide two separate reports in relation to these services. It is important that these reports are distinct so that, investment firms disclose on one hand the top five execution venues and on the other hand the top five entities (brokers) to which client orders were routed during the relevant period. To note, this does not preclude firms from, in addition, providing a single consolidated report on the execution venues and entities the firms uses most frequently to execute client orders.