WFE Response to ESMA on Tick Sizes Third Country Instruments - 7 September 2018

The WFE’s key messages are:

  • Coordination of regulation governing minimum tick sizes encourages competition and international regulatory coherence. A level playing field between venues and jurisdictions is an important means of securing the best outcomes for end-users of financial markets.

  • Third-country trading venues are crucially important to the European financial-market value chain. Capital flows in either direction between the EU and third countries variously support European businesses and investors, and contribute to the efficient allocation of capital. Choice between EU and non-EU trading venues spurs healthy competition and enables intermediaries to achieve the best possible execution for investors.

  • The WFE believes that ESMA's ‘approach A’ - the adoption in the EU of the tick size in use in the third country in question - is the best means of achieving ESMA's stated objectives for amending tick sizes (ie, enhancing the competitiveness of EU trading venues and promoting orderly trading), while also accounting for the interests of investors.

  • As not all jurisdictions have tick size regimes, however, and in recognition of ESMA's interest in accounting for these instruments in its amendments, the WFE acknowledges that recourse to ‘approach D’ - allowing the competent authorities of trading venues trading a third country instrument to coordinate and to agree on an adjusted ADNT that reflects the liquidity available on third country venues on a case-by-case basis - may be necessary (albeit that several practical challenges with this approach would need to be addressed).