Cash Markets

To ensure MiFID II compliance for Euronext Cash Markets, Euronext has introduced a number of changes to its Cash legacy environment. Please note that these changes may deviate from the implementation of MiFID II requirements on Optiq or on UTP-Derivatives. Members are requested to carefully consult the MiFID II Implementation Guide for Euronext Cash Markets, the MiFID II Migration Guidelines and associated technical specifications to assess the full technical and functional implications for Euronext Cash Markets.

New Order Fields

Article 25 of MiFIR requires operators of a trading venue to keep records of orders available upon request from competent authorities for a period up to five years. RTS 24 specifies the details of the items of order record keeping by trading venues, including the requirement to identify relevant parties to an order.

UTP-Cash
Prior to the implementation of Optiq, Euronext has not build new fields in order entry for Cash Markets for the purpose of Order Record Keeping under RTS 24. To obtain identification of the relevant parties to an order, Euronext instead requests members to populate the short codes and DEAIndicator on order entry using existing fields FreeText, FreeText_2 (Binary only) and ClientID. Members who are unable to use the FreeText and ClientID fields may submit the identification of the relevant parties related to each order in a flat file, via SLC Manager.  To identify whether the executing decision has been generated by an algorithm, Euronext requests Members to use existing field TradingSessionID to supply the Algo Flag. Euronext will not request Members to supply Trading Capacity. Euronext will instead infer Trading Capacity from the UTP AccountType / Rule80A. Members are strongly reminded to not change the way Rule80A is currently populated in order entry to match with the relevant Trading Capacity.

Euronext will not validate short codes upon order entry or reject orders if short codes have not been declared ahead of trading.

Optiq OEG
On Optiq Order Entry Gateway, the following range of new order fields are being added in all incoming application order entry messages (including the LP related quote and command messages) to meet, amongst others, the requirements for Order Record Keeping under RTS 24:

  • ClientIdentificationShortCode - Short code corresponding to LEI, National ID, AGGR (aggregated orders) or PNAL (pending allocations);
  • ExecutionWithinFirmShortCode - Short code corresponding to National ID, Algorithm ID or NORE (client executing decision maker);
  • InvestmentDecisionWFirmShortCode - Short code corresponding to National ID or Algorithm ID
  • NonExecutingBrokerShortCode - Short code corresponding to LEI;
  • TradingCapacity – Indicator corresponding to dealing on own account (DEAL), matched principal (MTCH), or any other capacity (AOTC);
  • MiFID Indicators – to indicate DEA, Investment Algo, and Execution Algo  

Euronext will not validate short codes upon order entry or reject orders if short codes have not been declared ahead of trading.

Please consult the Optiq OEG client specifications for the complete guidelines to MiFID II changes, rules and conditions for populating the new fields in private order entry messages, as well as the types of checks that would be done on this data.

Pre-Trade Transparency

MiFID II replicates the pre-trade transparency framework of MiFID I with respect to waivers.Prior to the implementation of Optiq, pre-Trade Transparency Waivers will be applied by Euronext to orders on the Central Order Book as follows:

  • Order Management Facility Waiver: Euronext will not accept Iceberg orders on non-Euro denominated Instruments. Iceberg orders on Euro denominated Instruments will be accepted with a minimum threshold of >10,000€.
  • Negotiated Trade Waiver: Euronext will not accept Guaranteed Cross orders on Bonds, Securitized Derivatives & ETN / ETC and on non-Euro denominated instruments. Guaranteed Cross orders on Equities will continue to be accepted. However, Guaranteed Cross orders below Large In Scale (LIS) may be subject to Volume Cap restrictions. Guaranteed Cross orders above LIS will be executed under the Large In Scale Waiver and will therefore not be subject to the Volume Caps.
  • Reference Price Waiver: Euronext will not facilitate trading under the Reference Price Waiver on the Central Order Book.
  • Large in Scale Waiver: Order above the Large In Scale (LIS) thresholds will be executed by Euronext under the LIS Waiver. Euronext has furthermore launched Euronext Block, an MTF powered by AX Trading technology, facilitating pro-active Large in Scale execution in over 2,000 instruments on 15 markets.

Volume Cap Management

MiFID II introduces a ‘Double Volume Cap’ limiting the scope of trading under the Reference Price and Negotiated Deal waivers. Volumes traded under these waivers will be capped at 4% per share on a single venue and 8% across all trading venues.

Ahead of the Production go-live of Optiq, Euronext will automatically reject Guaranteed Cross orders below Large in Scale on instruments that are subject to a Volume Cap with error code 20360. Guaranteed Cross orders above LIS will not be subject to the Volume Caps. Euronext will not implement automatic rejections on orders / instruments that are subject to a Volume Cap on Trade Confirmation System (TCS). In case trading activity has been conducted on a type of order / instrument affected by a Volume Cap on TCS, Euronext will follow a manual trade cancellation process according to the regular (same day) trade cancellation procedures.

Euronext will not communicate on progress towards the 4% Volume Cap. Instead, Euronext will communicate any instruments prevented from trading under the Volume Cap constraints via a dedicated Euronext webpage, along with the resumption date. Euronext will then also indicate which types of orders are affected.

Tick Sizes

As communicated via Info-Flash on 12 October 2017 and 13 December 2017, Euronext will adapt its Tick Sizes according to the policies established in RTS 11.

For European Equities, Euronext will apply the new tick size regime as a function of the instrument liquidity band and the price range in that liquidity band corresponding to the price of the order. For ETFs, Euronext will determine the tick size only as a function of price, as all impacted ETFs have been included in the most liquid category. The new tick size policy will only apply to ETFs listed on Euronext with an equity underlying that is also subject to the new tick size regime. For ETFs out of scope for RTS 11 (i.e. those that do not have a 100% European equity underlying), the tick size will be established according to current procedures where  the issuer will decide the tick size at the listing of the instrument.

Euronext will communicate the ‘Tick Size Index Identifier’ as part of the referential message Standing Data (1007) and the Cash Tick Size Referential File. Clients are required to cross-reference the ‘Tick Size Index Identifier’ with the Tick Table, to obtain the relevant tick size applicable to the instrument.

New Tick Sizes will enter into effect on 2 January 2018. Euronext will review and adjust the tick sizes for Equities and ETFs annually, following the yearly review and publication by the national competent authorities of the average daily number of transactions in the financial instruments.

Order to Trade Ratio

Euronext will calculate and monitor the ratio of unexecuted orders to transactions on the basis of both ‘volume’ and ‘number’.

For Equities, ETFs, Bonds and Securitised Derivatives, Euronext will apply an unexecuted Order to Trade ratio of 100:1 per second and a volume ratio of 10,000,000:1 per second. For Market Makers and Liquidity Providers, Euronext will double this ratio to 200:1 per second, with a volume ratio of 20,000,000:1 per second. Euronext will continuously monitor market conditions and may adjust the ratios if necessary.

Euronext will monitor participants in order to detect when ratios are breached and will maintain the current procedures for communication of a breach; participants in breach of the ratio will receive an alert from Euronext’s Client Coverage Centre on the day after the breach. Euronext does not currently provide a tool or daily reporting of the OTR to Members. Access to the market will not be blocked in case of a breach of this ratio. However, for certain Cash products, different Order to Trade ratios may continue to be used for fee purposes. Please refer to the relevant Euronext fee guides for more information.

Timestamps

MiFID II holds that all trading venues and their members and participants will have to synchronise the business clocks they use to record the date and time of any reportable event. The reference time should be Coordinated Universal Time (UTC).  Levels of accuracy depend on gateway-to-gateway latency. A maximum divergence of 1 millisecond from UTC will be permitted where gateway-to-gateway latency is above 1 millisecond, and 100 microseconds where it is below 1 millisecond.

Euronext services and protocols on UTP-Cash have been updated to provide microsecond timestamping granularity on executions. Changes have been designed to provide clients with flexibility to choose which service and protocol to use to extract timestamping granularity: 

  • CCG Binary (v6) & FIX protocol execution messages
  • Drop Copy Binary & FIX protocol execution messages
  • End of Day (EOD) Application Trade file

Please note: the granularity will only be provided on executions. To obtain the appropriate timestamp for Transaction Reporting, clients are required to concatenate the values in the fields TransactTime and TradeTimeSecondsGranularity.

Upon the implementation of Optiq, Euronext will provide Euronext will provide, at minimum, microsecond timestamping granularity in the following services and protocols:

  • OEG SBE & FIX protocol messages
  • Drop Copy FIX protocol messages
  • EOD Application Trade file Timestamps

ISIN Codes

For the purposes of Transaction Reporting (RTS 22) and Order Record Keeping (RTS 6), venues are required to supply financial instrument reference data to the competent authorities. MiFID II establishes the ISIN code as the single standard for financial instrument identifiers.

On Euronext Cash Markets, ISIN codes are allocated through the admission to trading process and no change is anticipated in that process. ISIN Codes are available in Standing Data (1007) messages.

TVTIC

For the purposes of transaction reporting (RTS 22) to regulators and order record keeping (RTS 6 and RTS 24), trading venues are required to assign a unique Trading Venue Transaction Identification Code (TVTIC) that is consistent and persistent per MIC and per trading day.

For Cash Markets, Euronext uses a concatenation of the value of the fields for Execution (or Trade) ID and the ISIN code to generate TVTIC. No padding is applied. Members are required to conduct their own concatenation of the values communicated in the execution and fill messages with the appropriate ISIN code for purposes of RTS 22 and RTS 6.

For execution ID, the field to use per protocol is:

  • SBE: Execution ID
  • FIX: ExecID (tag 17)

ISIN Code is the field retrieved from standing data for the associated instrument.

 

Waiver Indicators

For purpose of Transaction Reporting (RTS 22) and Order Record Keeping (RTS 6), investment firms are required to identify whether orders have been executed under pre-Trade Transparency Waivers:

  • ‘RFPT’ - Reference price
  • ‘NLIQ’ - Negotiated (liquid)
  • ‘OILQ’ - Negotiated (illiquid)
  • ‘PRIC’ - Negotiated (conditions)
  • ‘SIZE’ - Above specified size
  • ‘ILQD’ - Illiquid instrument

Order Management Facility waivers and Large in Scale waivers are not in scope for Transaction Reporting or Order Record Keeping.

Central Order Book
On the Central Order Book for Euronext Cash Markets, Euronext will not offer trading under the Reference Price Waiver. Trading under the Negotiated Trade Waiver is limited to Guaranteed Cross orders on Equities, below Large In Scale (LIS). Should a Guaranteed Cross order be executed in Equities below LIS, Euronext will automatically apply the Negotiated Trade Waiver. However, Euronext will not include a Waiver Indicator in fill or execution messages. Members will be required to infer the applied waiver from the submitted order type.

Trade Confirmation System
On the Trade Confirmation System (TCS), Euronext will enable the following Waiver and order type combinations:

  • NLIQ: applied to Equities & ETFs that are flagged by ESMA as being a liquid financial instrument, set on Off-Market On-Exchange trades that are (1) not VWAP transactions and (2) not identified as the Large in Scale limit
  • OILQ: applied to Equities & ETFs that are flagged by ESMA as being an illiquid financial instrument, set on Off-Market On-Exchange trades that are (1) not VWAP transactions and (2) not identified as Large in Scale limit
  • PRIC: applied to any  operations conducted on Euronext Fund Services (Paris and Amsterdam), VWAP transaction for Equities, “Cash Legs” of Delta-neutral & Exchange for Physical trades reported on an Equity and/or ETF underlying

Waivers applied to relevant orders in TCS will be communicated in the EOD Application Trade file.

Trade Confirmation System (TCS)

Euronext’s trade confirmation system (TCS) is used for the publication and reporting of transactions made outside a regulated market, in all instruments (equities, ETFs, warrants, certificates and bonds) listed on Euronext Cash Markets and, more generally, for other regulated market trades, such as negotiated deals, block trades and volume weighted average price (VWAP) trades.

Per 2 January 2018, Euronext will discontinue the Over The Counter (OTC) reporting services in TCS. More specifically, OTC Reporting (L), OTC Publication (M) and OTC Reporting and Publication (N) services will migrate to the Euronext APA and ARM services on the new Saturn reporting platform. The TCS facility OTC Trade (K) will be relaunched as cleared OTC Trade Facility on Saturn per 3 January 2018. Please visit the dedicated webpage on APA and ARM for more information here.  From the end of 2017, Euronext discontinued the e-TCS tool.

With the introduction of MiFID II, Euronext will furthermore implement the following MIFID II changes on TCS: new LIS sizes, new controls to reject orders on Bonds and Warrants below LIS, rules for deferred publication on Equities and ETFs, prohibition on deferred publication for Bonds and Warrants.   

Market Making & LP Flagging

Market Making Agreement
As announced via Info-Flash on 26 October 2017, Euronext has made available a Market Making Agreement in accordance with MiFID II regulation. The new Euronext Market Making Agreement is comprised of the General Terms and Conditions, Operating Terms and a Registration Form.

Investment firms engaged in algorithmic trading and pursuing market making strategies on any Euronext tradable instrument are required to enter into a Market Making Agreement with Euronext by submitting a completed Registration Form.

Market Makers will be required to post firm, simultaneous two-way quotes of comparable size and competitive prices. They must also deal on their own account for at least 50% of the continuous trading session during at least half of the trading days over a single calendar month period.

Market Making Schemes and LP Programmes
In addition to the Market Making Agreement, Euronext has introduced a range of Market Making Schemes, as anounced via Info-Flash on 17 November 2017, to replace certain Liquidity Provider programmes on equities, ETFs, and financial derivatives.

The Market Making Schemes are subject to the General Terms & Conditions with specific quoting obligations per Scheme. The Market Making Schemes can be entered into by submitting a completed Registration Form per ISIN/contract code and security/underlying name.

In addition to the Market Making Schemes, Euronext will retain certain Liquidity Provider Programmes to accommodate specific product and/or client requirements.

Market Making registration process
The Market Making Agreement and the Market Making Schemes can be entered into by submitting a completed Registration Form per ISIN/contract code and security/underlying name, thereby confirming an understanding and acceptance of the General Terms and Conditions.

Euronext has enabled an online registration process via connect2.euronext.com for Authorised Representatives and those authorised to sign on behalf of the Member. Please note that the online registration process is not available for Members requiring more than one signatory to approve the General Terms and Conditions. In such cases, Members are required to use the regular Registration Form, available on the Euronext website and to return it to LPEurope@euronext.com.

Market Making and LP Flagging
Members or participants acting as Market Maker or Liquidity Provider on Euronext Cash Markets will be required to flag this activity via account type ‘6’ in Rule80A.

Ahead of the implementation of Optiq, Algo traders pursuing Market Making activities for Securitised Derivatives are requested to enter into a Market Making Agreement and are required to conduct all Market Making activities via a separate SLE if they are not part of the Securitised Derivative Liquidity Provision programme. Please contact the Euronext Structured Products desk for more information.

Stressed Market Conditions
Stressed Market Conditions on Euronext Cash markets will occur following volatility halts due to price / volume changes in securities that are declared to be ‘liquid securities’ by ESMA and subject to a contractual Market Making Scheme.

Stressed Market Conditions will be declared for a minimum duration of 60 minutes. If, during the 60 minutes of the declared Stressed Market Conditions, another volatility halt is triggered due to price and / or volume changes, the Stressed Market Conditions will be extended for another 60 minutes from the moment of the reopening of trading after the subsequent trading halt and so on until the closing of the markets.

In a situation constituting a Stressed Markets Condition, the obligation of the participant under the Market Making Scheme to provide liquidity on a regular and predictable basis will be amended to double the spread requirements. 

Information on Stressed Market Conditions will be published via a dedicated Euronext webpage with XML feed.

Exceptional Market Conditions
Euronext will additionally introduce Exceptional Market Conditions (EMC). During such conditions, Market Makers will not be subject to quoting obligations and the performance monitoring will be suspended.