On September 21, ESMA published an opinion (dated September 20, 2018) on amendments to Delegated Regulation (EU) 2017/587 (RTS 1) (ESMA70-156-769).

RTS 1 specifies that, in the context of the quoting obligation for systematic internalizers (the “SI“) “the determination of whether prices reflect prevailing market conditions”.

In November 2017, ESMA consulted on revisions to RTS 1 to clarify the concept of “prices reflecting prevailing market conditions” as well as other amendments to improve consistency in the application of its provisions. ESMA published a final report in March 2018 setting out a draft Delegated Regulation amending RTS 1 that sought to clarify that, for financial instruments subject to the minimum tick size regime, SI quotes would only be considered to reflect prevailing market conditions where those quotes reflect the price increments applicable to EU trading venues trading the same instruments.

The European Commission informed ESMA in August 2010 that it intended to endorse the amendments to RTS 1 subject to changes. In particular, the Commission intended to limit the obligation that quotes of SIs only adequately reflect prevailing market conditions where such quotes mirror the minimum price increments applicable to shares and depositary receipts, and not to all applicable equity and equity-like instruments as proposed by ESMA. The Commission also proposed a number of technical amendments to the other proposals submitted by ESMA.

In its opinion, ESMA agrees to limit the application of tick sizes to quotes of SIs to shares and depositary receipts. Although it continues to believe that applying the obligation to all equity and equity-like instruments better achieves the legislative goals expressed in Article 14(7) of Markets in Financial Instruments Regulation (Regulation 600/2014), ESMA considers that the Commission’s amendment will ensure the application of tick sizes to SIs’ quotes for most equity instruments in a timely fashion.

A revised draft Delegated Regulation amending RTS 1 is set out in the Appendix to the opinion.