(1)

In its communication of 24 September 2020 entitled ‘A Capital Markets Union for people and businesses – new action plan’ (‘CMU Action Plan’), the Commission announced its intention to table a legislative proposal to create a continuous electronic live data stream, which was meant to provide a comprehensive view of the prices and the volume of equity and equity-like financial instruments traded throughout the Union across trading venues (‘consolidated tape’). In its conclusions of 2 December 2020 on the Commission’s CMU Action Plan, the Council encouraged the Commission to stimulate more investment activity inside the Union by enhancing data availability and transparency by further assessing how to tackle the barriers to establishing a consolidated tape in the Union.

(2)

In its communication of 19 January 2021 entitled ‘The European economic and financial system: fostering openness, strength and resilience’, the Commission confirmed its intention to improve, simplify and further harmonise the securities markets transparency framework, as part of the review of Directive 2014/65/EU of the European Parliament and of the Council (4) and of Regulation (EU) No 600/2014 of the European Parliament and of the Council (5). As part of efforts to strengthen the international role of the euro, the Commission also announced that such a reform would include the design and implementation of a consolidated tape, in particular for corporate bond issuances, to increase secondary trading in euro-denominated debt instruments.

(3)

Regulation (EU) No 600/2014 provides a legislative framework for consolidated tape providers (CTPs), for both equity and non-equity instruments. Those CTPs are currently responsible for collecting from trading venues and approved publication arrangements (APAs) trade reports for financial instruments and consolidating them into a continuous electronic live data stream, which provides price and volume data per financial instrument. The idea behind the introduction of CTPs was that data from trading venues and APAs would be made available to the public in a consolidated manner, including all of the Union’s trading markets, using identical data tags, formats and user interfaces.

(4)

To date, however, no supervised entity has applied for authorisation to act as a CTP. In its report of 5 December 2019 on the development in prices for pre- and post-trade data and on the consolidated tape for equity instruments, the European Supervisory Authority (European Securities and Markets Authority) (ESMA) established by Regulation (EU) No 1095/2010 of the European Parliament and of the Council (6) identified three main obstacles that have prevented supervised entities from applying for authorisation as a CTP: first, a lack of clarity as to how a CTP is to obtain data from the various execution venues or from the data reporting service providers concerned; second, insufficient quality in terms of harmonisation of the data reported by those execution venues to allow for a cost-efficient consolidation; and third, a lack of commercial incentives to apply for authorisation as a CTP. It is therefore necessary to remove those obstacles. Such removal requires, first, that all trading venues and APAs (‘data contributors’) transmit data to CTPs, and, second, an improvement of the data quality by harmonising the data reports that data contributors are to submit to the data centres of CTPs.

(5)

Article 1(7) of Directive 2014/65/EU requires systems and facilities in which multiple third-party buying and selling trading interests in financial instruments are able to interact (‘multilateral systems’) to operate in accordance with the requirements concerning regulated markets, multilateral trading facilities (MTFs) or organised trading facilities (OTFs). The inclusion of that requirement within the scope of Directive 2014/65/EU has left room for varying interpretations of that requirement, which has led to an uneven playing field between multilateral systems that are authorised as a regulated market, an MTF or an OTF and multilateral systems that are not authorised as such. In order to ensure a uniform application of that requirement, it should be moved from Directive 2014/65/EU to Regulation (EU) No 600/2014.

(6)

Dark trading is trading without pre-trade transparency, using the waiver laid down in Article 4(1), point (a), of Regulation (EU) No 600/2014 (‘reference price waiver’) and the waiver laid down in Article 4(1), point (b)(i), of that Regulation (‘negotiated trade waiver’). The use of both waivers is capped by the double volume cap, which is a mechanism that limits the level of dark trading to a certain proportion of total trading in an equity instrument. First, the level of dark trading in an equity instrument on an individual venue is not to exceed 4 % of the total volume of trading in that instrument in the Union. When that threshold is exceeded, dark trading in that instrument on that venue is suspended. Second, the level of dark trading in an equity instrument in the Union is not to exceed 8 % of the total volume of trading in that instrument in the Union. When that second threshold is exceeded, all dark trading under both waivers in that instrument is suspended. The first threshold, namely the venue-specific threshold, leaves room for the continued use of those waivers on other venues on which trading in that equity instrument is not yet suspended, until the second threshold, namely the Union-wide threshold, is exceeded. That makes monitoring the levels of dark trading and enforcing the suspension more complex. To simplify the double volume cap while keeping its effectiveness, the new single volume cap should rely solely on a Union-wide threshold set at 7 %, which should apply only to trading under the reference price waiver and not to trading under the negotiated trade waiver. ESMA should regularly assess the volume-cap threshold, taking into account financial stability considerations, international best practices, the competitiveness of Union firms, the significance of the market impact and the efficiency of price formation, and should submit a report with its suggestions to the Commission. On that basis, the Commission should be empowered to adjust the volume-cap threshold by means of delegated acts. ESMA should also assess the appropriateness of the volume cap and whether it is necessary to remove it or to extend it to other trading systems or execution venues which derive their prices from a reference price.

(7)

Article 8 of Regulation (EU) No 600/2014 sets out pre-trade transparency requirements for market operators and investment firms operating a trading venue in respect of non-equity instruments, regardless of the trading system. The benefits of those requirements have been clear for such market operators and investment firms that operate a central limit order book or a periodic auction trading system, where bids and offers are anonymous, firm and truly multilateral. Other trading systems, in particular voice trading and request-for-quote systems, provide requestors with tailor-made quotes, which have marginal informational value to other market participants. To reduce the regulatory burden imposed on such market operators and investment firms and to simplify the applicable waivers, the requirement to publish firm or indicative quotes should apply only to central limit order books and periodic auction trading systems. In order to accommodate for limiting the pre-trade transparency to central limit order books and periodic auction trading systems, the requirements applicable to waivers as referred to in Article 9 of Regulation (EU) No 600/2014 should be amended. The waiver that is available above a size specific to the financial instrument for request-for-quote systems and for voice trading systems should be removed.

(8)

Currently, derivatives fall within the scope of the non-equity transparency regime, which combines different types of financial instruments with mostly securities (bonds) on the one hand and mostly contracts (derivatives) on the other. Transparency for non-equity instruments, as well as for equity instruments, relies on the concept of ‘traded on a trading venue’. For certain derivatives, that concept has proven to be problematic due to their lack of fungibility and the lack of appropriate identifying reference data. For that reason, the scope of derivatives transparency should rely not on the concept of ‘traded on a trading venue’, but, rather, on predefined characteristics of the derivatives. The derivatives should be subject to the transparency requirements regardless of whether they are traded on or off venue. The transparency requirements should apply to derivatives that are sufficiently standardised for the data published in relation to them to be meaningful for market participants beyond the contracting parties. This means that all exchange-traded derivatives should remain subject to the transparency requirements. Other derivatives should be subject to the transparency requirements where they fall within the scope of the clearing obligation under Regulation (EU) No 648/2012 of the European Parliament and of the Council (7) (‘clearing obligation’), for which a degree of standardisation is a prerequisite, and are centrally cleared. This ensures that transactions that are considered to be unsuitable for the clearing obligation, such as intragroup transactions, are not subject to the transparency requirements. In particular, only interest rate derivatives with the most standardised and liquid currency and tenor combinations should fall within the scope of the transparency requirements. Furthermore, recent market events have shown that a lack of transparency in certain credit default swaps referencing global systemically important banks or referencing an index comprising such banks might fuel speculation on the creditworthiness of such banks. Such credit default swaps should therefore also be subject to the transparency requirements where they are centrally cleared even where they are not subject to the clearing obligation. The Commission should be empowered to amend the conditions for determining the derivatives that are to be subject to the transparency requirements where market developments so require.

(9)

Article 10 of Regulation (EU) No 600/2014 contains requirements for trading venues to make public information related to transactions in non-equity instruments, including price and volume. Article 11 of that Regulation specifies where it is possible for competent authorities to authorise the deferred publication of those details. Such deferred publication is allowed where a transaction is above the large-in-scale size threshold, is in an instrument for which there is no liquid market, or, where the transaction involves liquidity providers, is above the size specific to the financial instrument threshold. Competent authorities have discretion to determine the duration of the deferrals and the details of the transactions to be deferred. That discretion has led to differing practices among the Member States and to an ineffective and complex post-trade transparency regime. To ensure transparency with regard to all types of investors, it is necessary to harmonise the deferral regime at Union level, to remove discretion at national level and to facilitate data consolidation. It is therefore appropriate to reinforce post-trade transparency requirements by removing the discretion of competent authorities.

(10)

To ensure an adequate level of transparency, the price and the volume of transactions executed in respect of bonds, structured finance products and emission allowances should be made public as close to real time as technically possible. In order not to expose liquidity providers in such transactions to undue risk, it should be possible to defer the publication of certain details of the transactions. The categories of transactions for which deferrals are allowed should be determined taking into account the size of the transactions and the liquidity of the financial instruments concerned. The exact details of the deferral regime should be determined by means of regulatory technical standards, which should be regularly reviewed in order to gradually decrease the applicable deferral duration. For the purpose of having a more stable transparency regime, a static determination of liquidity for bonds, structured finance products and emission allowances, or classes thereof, is needed. The draft regulatory technical standards developed by ESMA should specify which issuance sizes correspond to a liquid or illiquid market in bonds, or classes thereof, until their maturity, from which transaction size in either a liquid or illiquid bond a deferral can be applied, and the duration of such a deferral in accordance with this Regulation. In order to have an appropriate level of transparency for covered bonds, it is appropriate for the issuance size of such bonds to be determined in accordance with the criteria laid down in Commission Delegated Regulation (EU) 2015/61 (8). With regard to structured finance products and emission allowances, ESMA should develop draft regulatory technical standards to determine the instruments or the classes that have a liquid or illiquid market. ESMA should establish the applicable categories and the duration of the deferrals. It is appropriate for ESMA to also apply the determination of liquid and illiquid markets in bonds, emission allowances and structured finance products to the pre-trade transparency waiver. It is not appropriate for that determination to rely on frequent assessments. Competent authorities should have the power to extend the period of deferred publication of the details of transactions executed in respect of the sovereign debt instruments issued by their respective Member State. It is appropriate for such an extension to be applicable throughout the Union. With regard to transactions in sovereign debt instruments not issued by Members States, decisions on such extensions should be taken by ESMA.

(11)

The heterogeneity of derivatives should result in a deferral regime that is separate from those for other non-equity instruments. While the duration of deferrals should be determined by means of regulatory technical standards on the basis of the size of the transaction and liquidity of the class of derivative, ESMA should determine which instruments or classes are liquid, which are illiquid, and above which size of transaction it is possible to defer the publication of the details of the transaction. It is appropriate for ESMA to also apply the determination of liquid and illiquid markets to the pre-trade transparency waivers.

(12)

Article 13 of Regulation (EU) No 600/2014 requires market operators and investment firms operating a trading venue to make the pre-trade and post-trade information on transactions in financial instruments available to the public on a reasonable commercial basis and to ensure non-discriminatory access to that information. That Article has, however, not delivered on its objectives. The information provided by trading venues, APAs and systematic internalisers on a reasonable commercial basis does not enable users to understand data policies and how the price for data is set. On 18 August 2021, ESMA issued guidelines explaining how the concept of ‘reasonable commercial basis’ should be applied. Those guidelines should be converted to legal obligations and strengthened in order to ensure that it is not possible for trading venues, APAs, CTPs and systematic internalisers to charge for data according to the value that the data represents to individual users. Due to the high level of detail required to specify the concept of ‘reasonable commercial basis’ and the required flexibility in amending the applicable rules on the basis of the fast-changing data landscape, ESMA should be empowered to develop draft regulatory technical standards specifying how the concept of ‘reasonable commercial basis’ is to be applied, thereby further strengthening the harmonised and consistent application of Article 13 of Regulation (EU) No 600/2014. Furthermore, ESMA should monitor and assess developments in data policies and price-setting in the market. ESMA should update those draft regulatory technical standards on the basis of its assessment.

(13)

In order to reinforce the price formation process and to maintain a level playing field between trading venues and systematic internalisers, Article 14 of Regulation (EU) No 600/2014 requires systematic internalisers to make public all quotes in equity instruments where those systematic internalisers deal in sizes of up to the standard market size. Systematic internalisers are free to decide at which sizes they quote, provided that they quote at a minimum size of 10 % of the standard market size. That possibility, however, has led to very low levels of pre-trade transparency provided by systematic internalisers in equity instruments, and has hampered the achievement of a level playing field. It is therefore necessary to require systematic internalisers to make public firm quotes on the basis of a minimum quote size to be determined by means of regulatory technical standards. When developing those regulatory technical standards, it is appropriate for ESMA to consider the following objectives: increasing the pre-trade transparency of equity instruments for the benefit of end-investors; maintaining a level playing field between trading venues and systematic internalisers; providing end investors with an adequate choice of trading options; and ensuring that the trading landscape in the Union remains attractive and competitive both domestically and internationally. In order to increase the competitiveness of systematic internalisers, they should be allowed to match orders of any size at midpoint.

(14)

Articles 18 and 19 of Regulation (EU) No 600/2014 lay down pre-trade transparency requirements for systematic internalisers in respect of non-equity instruments when providing firm or indicative quotes to their clients. Those quotes are tailored to individual clients and are of marginal informational value to other clients. Therefore, those requirements should be removed. Nevertheless, systematic internalisers might fulfil pre-trade transparency requirements on a voluntary basis, for example to address needs of their retail clients.

(15)

Under the current legal framework, where one of the two parties to a transaction is a systematic internaliser, the systematic internaliser is required to report the trade to an APA, while its counterparty is not required to do so. This has led many investment firms to opt in to the status of systematic internaliser in particular for the purpose of reporting trades for their clients while not dealing on own account on a systematic basis, which has placed disproportionate requirements on such investment firms. Therefore, it is appropriate to introduce a status of designated publishing entity allowing an investment firm to be responsible for making a transaction public through an APA without the need to opt in to the status of systematic internaliser. Furthermore, competent authorities should grant investment firms the status of designated publishing entity for specific classes of financial instrument, in line with the request of those investment firms and should communicate such requests to ESMA. ESMA should maintain a public register of such designated publishing entities by class of financial instrument so that market participants can identify them.

(16)

Market participants need core market data to be able to make informed investment decisions. Currently, sourcing data about certain financial instruments directly from data contributors requires CTPs to enter into separate licensing agreements with all such data contributors. That process is burdensome, costly and time-consuming. It has been one of the obstacles to CTPs emerging in any asset class. That obstacle should be removed to enable CTPs to obtain the data and to overcome licensing issues. Data contributors should be required to submit their data to CTPs and to use a harmonised format meeting standards that ensure high-quality data when so doing. Data contributors should also provide regulatory data to keep investors informed of the status of the system matching orders, for example in the event of a market outage, and of the status of the financial instrument, for example in the event of suspensions or trading halts. Only CTPs selected and authorised by ESMA should be able to collect data from data contributors in accordance with the mandatory contribution rule. To make the data useful for investors, data contributors should be required to transmit data to the CTP as close to real time as technically possible.

(17)

Titles II and III of Regulation (EU) No 600/2014 require trading venues, APAs, investment firms and systematic internalisers to make public pre-trade data on financial instruments, including bid and offer prices and post-trade data on transactions, including the price and volume at which a transaction in a specific instrument has been concluded. Market participants are not obliged to use the core market data provided by the CTP. The requirement for trading venues, APAs, investment firms and systematic internalisers to make public pre-trade and post-trade data should therefore remain applicable to enable market participants to access such data. However, to avoid an undue burden on data contributors, it is appropriate to align, to the extent possible, the requirement that data contributors make data public with the requirement to contribute data to the CTP.

(18)

Small regulated markets and SME growth markets are trading venues which admit shares of issuers for which trading in the secondary market tends to be less liquid than the trading of shares admitted to trading on larger regulated markets. In order to avoid the negative impact the consolidated tape might have on small trading venues, even though their inclusion in the consolidated tape might have positive effects on their viability and the liquidity of the securities traded on those venues, an opt-in mechanism should be established. That opt-in mechanism should apply to investment firms operating SME growth markets and to market operators whose annual trading volume of shares represents 1 % or less of the annual trading volume of shares in the Union. Two alternative conditions should complement the 1 % threshold: either the investment firm or market operator is not part of a group comprising or having close links with an investment firm or a market operator that exceeds the 1 % threshold, or the concentration of the trading is very high in the venue operated by that investment firm or market operator, namely 85 % of the total annual trading volume of shares is traded in the trading venue where they were initially admitted to trading. Only a few trading venues fulfil those criteria, and therefore only a small percentage of trading in the Union would not be required to transmit data to the CTP. Nonetheless, the investment firms and market operators fulfilling those criteria would have the opportunity to opt in and should notify the CTP and ESMA of any decision to do so. Such a decision would be irrevocable and all the data – for both shares and exchange-traded funds (ETFs) – would be part of the consolidated tape afterwards.

(19)

Due to the varying quality of data, it is difficult for market participants to compare such data, which deprives data consolidation of much of its added value. It is of the utmost importance for the proper functioning of the transparency regime laid down in Titles II and III of Regulation (EU) No 600/2014 and for the consolidation of data by CTPs that data transmitted to the CTPs be of high quality. It is therefore appropriate to require that those data comply with standards that ensure high-quality data in terms of both substance and format. It should be possible to change the substance and the format of the data within a short time to allow for changing market practices and insights. Therefore the requirements for the quality and substance of data should, where necessary, be specified by means of regulatory technical standards and should take into account prevailing industry standards and practices, international developments and standards agreed at Union or international level as well as the advice of a dedicated expert stakeholder group, established by the Commission and tasked with providing advice on the quality and substance of data and the quality of the transmission protocol. ESMA should be closely involved in the work of the expert stakeholder group.

(20)

To better monitor reportable events, Directive 2014/65/EU harmonises the synchronisation of business clocks for trading venues and their members. To ensure that, in the context of the consolidation of data, timestamps reported by different entities can be compared meaningfully, it is appropriate to extend the requirements for harmonisation of the synchronisation of business clocks to designated publishing entities, systematic internalisers, APAs and CTPs. Due to the level of technical expertise required to specify the requirements for application of a synchronised business clock, ESMA should be empowered to develop draft regulatory technical standards to specify the level of accuracy to which the business clocks should be synchronised.

(21)

Article 23 of Regulation (EU) No 600/2014 requires that most of the trading in shares take place on trading venues or systematic internalisers (‘share trading obligation’). This requirement does not apply to trades in shares which are non-systematic, ad hoc, irregular and infrequent. It is currently not sufficiently clear when this exemption applies. ESMA has therefore clarified its scope by making a distinction between shares on the basis of their International Securities Identification Number (ISIN). According to that distinction, only shares with a European Economic Area (EEA) ISIN which are traded on a trading venue are subject to the share trading obligation. That approach provides clarity to market participants trading in shares. ESMA’s current practice should therefore be incorporated in Regulation (EU) No 600/2014, while simultaneously removing the exemption for trades in shares which are non-systematic, ad hoc, irregular and infrequent.

(22)

Reporting in financial markets – in particular transaction reporting – is already highly automated and data are fairly standardised. Some inconsistencies between frameworks have already been resolved in Regulation (EU) No 648/2012, Regulation (EU) 2015/2365 of the European Parliament and of the Council (9) and the Commission’s Regulatory Fitness and Performance (REFIT) programme. The empowerments of ESMA should be aligned to require ESMA to develop draft regulatory technical standards and ensure greater consistency in transaction reporting between the frameworks of those Regulations and that of Regulation (EU) No 600/2014. This will improve transaction data quality and avoid unnecessary additional costs for the industry. Furthermore, the transaction reporting should allow for a broad exchange of transaction data among competent authorities, in order to adequately reflect their evolving supervisory needs to monitor the most recent market developments and potential related risks.

(23)

Currently, investment firms are required to report their transactions to their competent authority in any financial instrument traded on a trading venue or where the underlying is traded on a trading venue or is an index or basket composed of financial instruments that are traded on a trading venue, regardless of whether the transaction is executed on or off venue. The concept of ‘traded on a trading venue’ has proven to be problematic in the case of over-the-counter (OTC) derivatives for the purposes of transaction reporting, for the same reason it has proven to be problematic for the purposes of transparency requirements. Therefore, the new scope for transaction reporting of derivatives clarifies that transactions in OTC derivatives executed on venue are to be reported, and those transactions in OTC derivatives executed off venue are to be reported only if they are subject to transparency requirements or if the underlying is traded on a trading venue or is an index or basket composed of financial instruments that are traded on a trading venue.

(24)

Trading venues should be obliged to provide ESMA with identifying reference data for transparency purposes, including identifiers of OTC derivatives. The identifier currently used for derivatives, namely the ISIN, has proved cumbersome and ineffective for public transparency, and that situation should be remedied by using identifying reference data based on a globally agreed unique product identifier, such as the ISO 4914 Unique Product Identifier (UPI). The UPI has been developed as an identification tool for OTC derivative products, with the intention to bring increased transparency and aggregation of data across the global OTC derivative markets. However, it is possible that that unique identifier is not sufficient and that it needs to be complemented by additional identifying data. Therefore, the Commission should specify, by means of delegated acts, the identifying reference data to be used with regard to OTC derivatives, including a unique identifier and any other relevant identifying reference data. In relation to the identifier to be used for the purposes of transaction reporting pursuant to Regulation (EU) No 600/2014, the Commission should specify the most appropriate identifiers of OTC derivatives, which might be different from the identifier determined for transparency requirements, taking into account the different purposes of those requirements, in particular as regards supervision of market abuse by competent authorities.

(25)

Competition among CTPs ensures that the consolidated tape is provided in the most efficient way and under the best conditions for users. However, to date, no entity has applied to act as a CTP. It is therefore appropriate to empower ESMA to periodically organise a competitive selection procedure to select a single entity which is able to provide the consolidated tape for each specified asset class for a limited period of time. First, ESMA should initiate the selection procedure concerning the consolidated tape for bonds. Within six months of the initiation of that selection procedure, ESMA should initiate the selection procedure for a CTP for shares and ETFs. Last, ESMA should initiate the selection procedure for the CTP on OTC derivatives within three months of the date of application of the delegated act specifying the appropriate OTC derivatives identifier for transparency purposes and no earlier than six months from the initiation of the selection procedure for a CTP for shares and ETFs.

(26)

The purpose of the selection procedure is to award the right to operate a consolidated tape for a period of five years. The selection procedure is subject to the rules laid down in Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council (10). ESMA should, for all classes, select a candidate on the basis of its technical abilities to operate a consolidated tape, including its ability to ensure business continuity and resilience, as well as its ability to use modern interface technologies, the organisation of its management and decision-making processes, its methods for ensuring data quality, the costs required for developing and operating a consolidated tape, the simplicity of the licences that users have to enter into in order to receive the core market data and regulatory data, including the number of types of licensing for various use cases or users, the level of fees charged to users and its processes for mitigating energy consumption. Specifically for the CTP for bonds, when selecting a CTP, ESMA should take into account the existence of fair and equitable arrangements for revenue redistribution. It is appropriate for such arrangements to acknowledge the role that small trading venues play in providing undertakings with the opportunity to issue debt to finance their activities. For shares and ETFs, CTPs should display the European best bid and offer, with no dissemination of the market identifier code of the venue. By 30 June 2026, the Commission should make an assessment of that level of pre-trade information for the functioning and competitiveness of Union markets and should, where appropriate, accompany that assessment with a legislative proposal on the design of the consolidated tape.

(27)

A selected applicant should, without undue delay, apply to ESMA for authorisation. Within 20 working days of such an application, ESMA should assess whether the application is complete and should notify the applicant accordingly. Within three months of receipt of a complete application, ESMA should adopt a reasoned decision granting or refusing authorisation. ESMA should base that reasoned decision on its assessment of whether the applicant is able, within a reasonable time, to operate a consolidated tape in compliance with all the requirements. ESMA’s reasoned decision should specify the conditions applicable to the applicant’s operation of the consolidated tape, in particular the level of fees charged to users. In order to ensure an orderly start of operation, it should be possible for ESMA, after granting authorisation, to allow the applicant a reasonable period of time to complete the development of the consolidated tape.

(28)

According to data presented in the impact assessment accompanying the proposal for this Regulation, the expected revenue generation for the consolidated tape is likely to vary depending on the precise features of the consolidated tape. The CTPs should not be prevented from making a reasonable margin to maintain a viable business model. Academics and civil society organisations using the data for research purposes, competent authorities using the data for the execution of regulatory and supervisory competences, and retail investors should have access, free of charge, to the core market data and regulatory data. The CTP should ensure that the information provided to retail investors is easily accessible and displayed in a user-friendly and human-readable format.

(29)

Trading venues facilitating the trading of shares via a pre-trade transparent order book play a key role in the price formation process. This is particularly true for small regulated markets and SME growth markets, namely those whose annual trading volume of shares represents 1 % or less of the annual trading volume of shares in the Union (‘small trading venues’), which are generally the main centre of liquidity for the securities they offer for trading. The data that small trading venues contribute to the consolidated tape therefore play a more determining role in the price formation for the shares that small trading venues admit to trading. Notwithstanding the possibility of certain data contributors not to contribute to the consolidated tape, it is appropriate to grant, to those data contributors that decide to opt in to the consolidated tape, preferential treatment for the redistribution of revenue generated by the consolidated tape for shares and ETFs, to help small trading venues to maintain their local admissions and safeguard a rich and vibrant ecosystem in line with the objectives of the capital markets union.

(30)

The CTP for shares and ETFs should redistribute part of its revenue generated by the consolidated tape to certain trading venues in accordance with a redistribution scheme based on three criteria. The weighting of those criteria should be specified by means of regulatory technical standards. In order to incentivise small trading venues to opt in to the mandatory contribution of data to the CTP for shares and ETFs, the highest weighting should apply to the total annual trading volume of small trading venues. The second highest weighting should remunerate data contributors that provided initial admission to trading of shares or ETFs on 27 March 2019 or thereafter. Considering the limited number of listings on small trading venues, the CTP should apply the relevant weighting on the total annual trading volume of such venues, whereas for other venues the CTP should apply it to the trading volume pertaining to the shares and ETFs that were initially admitted to trading on 27 March 2019 or thereafter. The lowest weighting of the three criteria should remunerate the trading that has been concluded on a trading system providing pre-trade transparency and that resulted from orders that were not subject to a waiver from pre-trade transparency.

(31)

The effectiveness of a consolidated tape depends on the quality of the data transmitted to it by data contributors. In order to ensure a high level of data quality, ESMA should establish the conditions under which the CTP is allowed to temporarily suspend the redistribution of revenue in the event that the CTP proves that a data contributor has seriously and repeatedly breached the data requirements established in this Regulation. Where it is found that that data contributor complied with those data requirements, the data contributor should receive the share of the revenue to which they were entitled, plus interest.

(32)

In order to safeguard market participants’ continued trust in the consolidated tape, CTPs should periodically publish a series of reports concerning compliance with their obligations under this Regulation, namely performance statistics and incident reports relating to data quality and data systems. Due to the highly technical nature of those reports, the content, timing, format and terminology of the reporting obligation should be specified by means of regulatory technical standards.

(33)

The requirement that trade reports are to be made available free of charge after 15 minutes currently applies to all trading venues, APAs and CTPs. For CTPs that requirement prevents the commercial viability of a potential CTP, since certain potential clients could prefer waiting for the free core market data rather than becoming users of the consolidated tape. This is in particular the case for bonds and OTC derivatives, which are in general not traded frequently and for which the data have often kept most of their value after 15 minutes. Therefore, while the requirement to deliver trade reports free of charge after 15 minutes should remain in place for trading venues and APAs, it should be abandoned for CTPs to ensure their commercial viability.

(34)

Article 28 of Regulation (EU) No 600/2014 requires that OTC derivatives that are subject to the clearing obligation be traded on trading venues (‘derivative trading obligation’). Regulation (EU) 2019/834 of the European Parliament and of the Council (11) amended Regulation (EU) No 648/2012 to reduce the scope of the entities that are subject to the clearing obligation. In light of the close interconnection between the clearing obligation and the derivative trading obligation, to ensure greater legal coherence, and to simplify the legal framework, it is necessary and appropriate to re-align the derivative trading obligation with the clearing obligation for derivatives. Without that alignment, certain smaller financial counterparties and non-financial counterparties would no longer be captured by the clearing obligation but continue to be captured by the derivative trading obligation.

(35)

Post-trade risk reduction services are an essential tool of risk management with respect to OTC derivatives. Post-trade risk reduction services rely on technical transactions that are pre-arranged, non-price-forming and market-risk neutral and that achieve a reduction in the risk in each of the portfolios. Portfolio compression services, which are currently exempt from the obligation to execute orders on terms most favourable to the client as laid down in Article 27 of Directive 2014/65/EU (‘best execution’) and transparency requirements, are a subset of post-trade risk reduction services. In light of their technical and non-price-forming nature, the transactions on OTC derivatives that are formed and established as a result of post-trade risk reduction services should not be subject to the derivative trading obligation. Taking into account the fact that providers of post-trade risk reduction services do not allow multiple third-party buying and selling trading interests in financial instruments to interact, they should not be considered to operate a multilateral system. They should similarly be exempt from requirements of pre- and post-trade transparency and of verifying best execution. The Commission should be empowered to specify, by means of delegated acts, what constitutes post-trade risk reduction services for the purposes of Regulation (EU) No 600/2014 and the particulars of the transactions to be recorded.

(36)

Article 6a of Regulation (EU) No 648/2012 provides for a mechanism to temporarily suspend the clearing obligation where the criteria on the basis of which specific classes of OTC derivative have been made subject to the clearing obligation are no longer met, or where such suspension is considered necessary to avoid a serious threat to financial stability in the Union. Such suspension might, however, prevent counterparties from being able to comply with their derivative trading obligation, because the clearing obligation is a pre-requisite to the derivative trading obligation. It is therefore necessary to lay down that, where the suspension of the clearing obligation would lead to a material change in the criteria for the derivative trading obligation, it should be possible to concurrently suspend the derivative trading obligation for the same classes of OTC derivative that are subject to the suspension of the clearing obligation. ESMA should also be able to request that the Commission suspend the derivative trading obligation, where such a suspension is necessary to avoid or address adverse effects on liquidity or a serious threat to financial stability and to ensure the orderly functioning of financial markets in the Union.

(37)

An ad hoc suspension mechanism is necessary to ensure that the Commission is able to swiftly react to significant changes in market conditions that could have a material effect on the trading of derivatives and on counterparties involved in such trading. Where such changes in market conditions are present, and upon the request of the competent authority of a Member State, the Commission should be able to suspend the derivative trading obligation independently from any suspension of the clearing obligation. Such a suspension of the derivative trading obligation should be possible where the activities of an EEA investment firm with a non-EEA counterparty are unduly affected by the scope of the derivative trading obligation and where that investment firm acts as a market maker in the category of derivatives subject to the derivative trading obligation. The issue of overlapping derivative trading obligations is particularly acute in the case of trading with counterparties within the jurisdiction of a third country that applies its own derivative trading obligations. That suspension would also help EEA financial counterparties to remain competitive on global markets. When deciding whether to suspend the derivative trading obligation, the Commission should take into account the impact of such a suspension on the clearing obligation.

(38)

Provisions concerning non-discriminatory access for exchange-traded derivatives might reduce the attractiveness of investing in new products as competitors might be able to get access without the upfront investment. The application of the non-discriminatory access regime for exchange-traded derivatives, laid down in Articles 35 and 36 of Regulation (EU) No 600/2014, might thus limit investment in such products by removing incentives for regulated markets to create new exchange-traded derivatives. It should therefore be laid down that that regime is not to apply to the central counterparty (CCP) or trading venue concerned in respect of exchange-traded derivatives, thus fostering innovation and the development of exchange-traded derivatives in the Union.

(39)

Financial intermediaries should strive to achieve the best possible price and the highest possible likelihood of execution for trades that they execute on behalf of their clients. To that end, financial intermediaries should select the trading venue or counterparty for executing their clients’ trades solely on the basis of achieving best execution for their clients. It should be incompatible with the principle of best execution that a financial intermediary, when acting on behalf of its retail clients or clients that have opted in to the professional client regime as referred to in Directive 2014/65/EU, receives a fee, a commission or a non-monetary benefit from any third party for executing orders from those clients on a particular execution venue or for forwarding orders of those clients to any third party for their execution on a particular execution venue. Investment firms should therefore be prohibited from receiving such payment. This prohibition is necessary in light of the divergent practices by competent authorities across the Union in their application and supervision of the best-execution requirement as laid down in Article 27 of Directive 2014/65/EU. It should be possible for a Member State in which investment firms carried out such an activity before 28 March 2024 to exempt investment firms under its jurisdiction from that prohibition until 30 June 2026, where those investment firms provide such services to clients domiciled or established in that Member State.

(40)

In order to ensure the flexibility necessary to adapt to developments in the financial markets, and to specify certain technical elements of Regulation (EU) No 600/2014, the power to adopt acts in accordance with Article 290 of the Treaty on the Functioning of the European Union (TFEU) should be delegated to the Commission in respect of adjusting the volume-cap threshold; amending the conditions for determining which OTC derivatives are subject to transparency requirements; specifying the identifying reference data to be used with regard to OTC derivatives; specifying what constitutes post-trade risk reduction services for the purposes of Regulation (EU) No 600/2014 and the particulars of the transactions to be recorded by investment firms and market operators that are providers of post-trade risk reduction services; and extending the obligation to report transactions to AIFMs and management companies which provide investment services and activities and which execute transactions in financial instruments. It is of particular importance that the Commission carry out appropriate consultations during its preparatory work, including at expert level, and that those consultations be conducted in accordance with the principles laid down in the Interinstitutional Agreement of 13 April 2016 on Better Law-Making (12). In particular, to ensure equal participation in the preparation of delegated acts, the European Parliament and the Council receive all documents at the same time as Member States’ experts, and their experts systematically have access to meetings of Commission expert groups dealing with the preparation of delegated acts.

(41)

In order to ensure uniform conditions for the implementation of Regulation (EU) No 600/2014 with regard to the suspension of the derivative trading obligation for OTC derivatives, implementing powers should be conferred on the Commission. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (13).

(42)

The Commission should be empowered to adopt the regulatory technical standards developed by ESMA with regard to: the characteristics of central limit order books and periodic auction trading systems; the precise characteristics of the deferral regime for non-equity transactions; the provision of information on a reasonable commercial basis; the threshold for the application of the pre-trade transparency obligations for systematic internalisers and the minimum quote size for systematic internalisers; the quality of the transmission protocol, measures to address erroneous trade reporting and enforcement standards in relation to data quality, including arrangements regarding cooperation between data contributors and the CTP, and, where necessary, the quality and the substance of the data for the operation of the consolidated tapes; the level of accuracy to which business clocks are to be synchronised by trading venues, systematic internalisers, designated publishing entities, APAs and CTPs; the conditions for linking specific transactions and the means of identifying aggregated orders resulting in the execution of a transaction; the date by which transactions and reference data are to be reported; the information to be provided by applicants for authorisation as a CTP; the weighting assigned to the criteria for the application of the revenue redistribution scheme, the method for calculating the amount of the revenue to be redistributed to data contributors under that scheme, and the criteria under which the CTP can temporarily suspend the participation of data contributors in that scheme; and the content, timing, format and terminology of the reporting obligation of CTPs. The Commission should adopt those regulatory technical standards by means of delegated acts pursuant to Article 290 TFEU and in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

(43)

The Commission should be empowered to adopt the implementing technical standards developed by ESMA with regard to the content and format of the notification to be submitted to competent authorities by firms that meet the definition of systematic internaliser; and the standard forms, templates and procedures for the provision of information and the notifications as regards applicants for authorisation as a CTP. The Commission should adopt those implementing technical standards by means of implementing acts pursuant to Article 291 TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010.

(44)

Since the objectives of this Regulation, namely to facilitate the emergence of a consolidated tape for each asset class and to amend certain aspects of Regulation (EU) No 600/2014 in order to improve transparency on markets in financial instruments, and to further enhance the level playing field between regulated markets and systematic internalisers, as well as enhance the international competitiveness of the Union’s capital markets, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale and effects, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives.

(45)

This Regulation respects the fundamental rights and observes the principles recognised in the Charter of Fundamental Rights of the European Union, in particular the freedom to conduct a business and the right to consumer protection.

(46)

Regulation (EU) No 600/2014 should therefore be amended accordingly,

(1)

Article 1 is amended as follows:

(2)

in Article 2, paragraph 1 is amended as follows:

(3)

Article 4 is amended as follows:

(4)

Article 5 is amended as follows:

(5)

Article 8 is amended as follows:

(6)

the following articles are inserted:

(7)

Article 9 is amended as follows:

(8)

Article 10 is replaced by the following:

(9)

Article 11 is amended as follows:

(10)

the following article is inserted:

(11)

in Article 12, paragraph 1 is replaced by the following:

(12)

Article 13 is replaced by the following:

(13)

Article 14 is amended as follows:

(14)

Article 15 is amended as follows:

(15)

Article 16 is replaced by the following:

(16)

Article 17a is replaced by the following:

(17)

Articles 18 and 19 are deleted;

(18)

Article 20 is amended as follows:

(19)

Article 21 is amended as follows:

(20)

the following article is inserted:

(21)

in Article 22(1), the introductory wording is replaced by the following:

‘In order to carry out calculations for determining the requirements for the pre- and post-trade transparency and the trading obligation regimes referred to in Articles 3 to 11a, 14 to 21 and 32 which are applicable to financial instruments, and in order to prepare reports to the Commission in accordance with Article 4(4), Article 7(1), Article 9(2), Article 11(3) and Article 11a(1), ESMA and competent authorities may require information from:’;

(22)

the following articles are inserted:

(23)

in Article 23, paragraph 1 is replaced by the following:

(24)

Article 25 is amended as follows:

(25)

Article 26 is amended as follows:

(26)

Article 27 is amended as follows:

(27)

Article 27d is amended as follows:

(28)

the following articles are inserted:

(29)

in Article 27e, the following paragraph is added:

(30)

in Article 27f, paragraph 4 is replaced by the following:

(31)

Article 27g is amended as follows:

(32)

Article 27h is replaced by the following:

(33)

the following article is inserted:

(34)

in Article 27i, the following paragraphs are inserted:

(35)

Article 28 is amended as follows:

(36)

Article 31 is amended as follows:

(37)

Article 32 is amended as follows:

(38)

the following article is inserted:

(39)

Article 35 is amended as follows:

(40)

Article 36 is amended as follows:

(41)

in Article 38, paragraph 1 is replaced by the following:

(42)

in Article 38g(1), the introductory wording is replaced by the following:

‘Where ESMA finds that a person listed in Article 38b(1), point (a), has not complied with any of the requirements laid down in Articles 20 to 22c, or in Title IVa, it shall take one or more of the following actions:’;

(43)

in Article 38h(1), the first subparagraph is replaced by the following:

‘Where ESMA, in accordance with Article 38k(5), finds that a person listed in Article 38b(1), point (a), has intentionally or negligently not complied with any of the requirements laid down in Article 22 to 22c, or in Title IVa, it shall adopt a decision imposing a fine in accordance with paragraph 2 of this Article.’;

(44)

the following article is inserted:

(45)

Article 50 is amended as follows:

(46)

Article 52 is amended as follows:

(47)

Article 54 is amended as follows: