Derivative Markets

Euronext has introduced a number of changes to its Derivative environment to ensure MiFID II compliance. Members are requested to carefully consult the technical specifications, MiFID II Technical Note for Euronext Derivative Markets, and the MiFID II Migration Guidelines to assess the full technical and functional implications.

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.

A range of new order fields have been added in all incoming application order entry messages on UTP Derivatives and Atom-X (including the LP related quote and command messages) to meet, amongst others, the requirements for Order Record Keeping under RTS 24. New fields include but are not limited to:

  • ClientIdentificationShortCode - Short code corresponding to LEI, National ID, ‘AGGR’ (aggregated orders) or ‘PNAL’ (pending allocations);
  • ExecutionWithinFirmShortCode - Short code corresponding to National ID, Algorithm ID, NORE (client execution decision maker);
  • InvestmentDecisionWFirmShortCode - Short code corresponding to National ID or Algorithm ID;
  • DEAIndicator - Indicates whether the order was submitted via a Direct Electronic Access (DEA) connection or not.
  • ExecWFirmAlgoTradingIndicator - Indicates whether the order execution was submitted by an trading algorithm or not;
  • InvDecWFirmAlgoTradingIndicator - Indicates whether the investment decision was submitted by an trading algorithm or not;
  • TradingCapacity - MiFID II field that indicates whether the order submission results from trading as matched principal, on own account or as any other capacity.

As of 3 January 2018, Euronext will apply technical controls on all MiFID II fields and will reject an order with an error message if mandatory and conditional fields have not been filled as required. However, Euronext will not reject synthetic generic data. 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 client specifications  and Technical Note for the complete guidelines to MiFID II changes for UTP-Derivatives, 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

Large In Scale (LIS) Thresholds
Pursuant to the transparency requirements set forth in RTS 2, Euronext will apply pre-trade minimum volume threshold to the Euronext wholesale facilities as follows:

  • Large-in-Scale Facility: the minimum LIS volume threshold applies to each leg of the trade;
  • Delta Neutral trades: involves the simultaneous execution of options and an appropriate number of offsetting futures or shares/ETFs in order to create a zero net delta. The minimum LIS volume threshold applies to each options leg but not the related other leg;
  • Basis trades: involves a combination of a basis trade instrument (a correlated security, a basket of securities, a traded contract listed on another trading venue or an OTC instrument) and an appropriate number of offsetting futures in order to trade the difference in prices of the two related instruments. A minimum LIS volume threshold applies to one leg but not the related other leg.

For LIS trades that are reported via AtomX, Members may opt to defer the publication of the trade. Deferred publication is permitted for trades that are at or above the minimum LIS post-trade threshold. The period of deferral is until the end of the Trading Day.

The complete list of LIS thresholds per contract can be found here.

Guaranteed Cross Trade
Per 3 January 2018, Euronext will also apply the LIS minimum volume thresholds to the Guaranteed Cross Trade facility for financial derivatives. The facility will be disabled for cross trades below the LIS minimum volume threshold as of this date. The other rules regarding the Guaranteed Cross Trade facility (Trading Procedure 4.6) will remain in place. Please note that different pricing rules apply to Guaranteed Cross Trade facility and the Large in Scale facility as described in Trading Procedures 4.5.12A and 4.6.‎

Request For Cross Facility
For cross orders below the LIS minimum volume thresholds, Euronext will make available an enhanced version of the Request For Cross (RFC) Facility for financial derivatives by the end of January 2018. The current RFC facility for financial derivatives will be unavailable as of 3 January 2018 pending these changes. More information about the amendments and confirmation of the go live date will be published in due course.

Tick Sizes

The Tick Size policy established in RTS 11 of MiFID II applies only to European Equities and ETFs with a 100% European Equity underlying. As such, Euronext Derivatives are out of scope for RTS 11 and will maintain the original Tick Sizes assigned at the time of issuance.

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 Derivatives, Euronext will apply an unexecuted order-to-trade ratio of 100:1 per second and 10,000:1 contracts per second.  For Market Makers, Euronext will double this ratio to 200:1 per second and 20,000:1 contracts 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. Access to the market will not be blocked and no charges will be applied to this particular ratio for Derivatives.

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-Derivatives have been updated to provide microsecond timestamps on all messages.

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.

For Euronext Derivatives, the numbering agencies have provided Euronext with a range of ISIN codes. Each time an instrument is created, the system will allocate a new ISIN taken from the range. Euronext will inform the numbering agencies which ISIN codes have been allocated daily at end of day. The ISIN code are communicated as part of the Euronext Market Data feed via Outright Standing Data messages (1014) along with the other referential characteristics.

Euronext will not generate an ISIN code for strategies, but only for the instruments making up the strategy.

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 will use a concatenation of the value of the fields Execution ID (SBE ) / ExecID (FIX) and ISIN to generate the TVTIC. No padding will apply. Members are required to conduct their own concatenation of the values communicated in the execution and fill messages plus the appropriate ISIN code for purposes of RTS 22 and RTS 6.

Complex Trade ID

Euronext will not generate a complex trade ID for Field 40 of RTS 22, as Euronext perceives this as the “identifier internal to the reporting firm”.

Waiver Indicators

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

  • ‘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.

Waivers applied to relevant orders for Euronext Derivatives will be communicated in fill and execution messages.

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 Market Making General Terms and Conditions, the Market Making Operating Terms and the 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
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
Euronext will require Algo traders pursuing market making activities to enter into a Market Making agreement. The members or participants will be required to indicate the designated capacity via the account type ‘M’ for AccountCode.

Stressed Market Conditions
Stressed Market Conditions on Euronext Derivative markets will occur following volatility halts due to price / volume changes in securities that are subject to a contractual Market Making Scheme.

The declaration of Stressed Market Conditions for Individual Equity Options and Futures, Index Options and Futures and ETF options will follow the market conditions of the underlying value closely. If Stressed Market Conditions are declared for an underlying value, Stressed Market Conditions will be declared for the related Individual Equity Option(s) for the same period of time.

In addition, the ‘Fast Markets’ methodology will be kept in place. Euronext will maintain the possibility to declare Stressed Market Conditions for Single Stock Dividend Futures (SSDFs). This will be determined on a case by case basis.

Stressed Market Conditions will be declared for a period of 60 minutes in all the cases mentioned above. In the case of prolonged Stressed Market Conditions for the underlying value, the related derivative contract will remain in Stressed Market Conditions status.

In a situation constituting ‘Stressed Markets Conditions’ 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 maintain Exceptional Market Conditions (EMC). During such conditions, there will be no quoting obligations and the performance monitoring will be suspended.