Norges Bank Investment Management (NBIM) told the European market watchdog that its ideas to make the process of a less used type of auction more transparent could distort stock prices and should be scrapped.

In response to the consultation of the European Securities and Markets Authority (ESMA) on the revision of the transparency requirements under the Markets in Financial Instruments Regulation (MiFIR), NBIM took into account the ideas put forward by ESMA to clarify pre-trade transparency requirements for new types of trading systems such as frequent lot auctions (FBA).

In a letter to the European body, Emil Framnes and Vegard Vik, respectively global head of equity trading and transition and special advisor at NBIM, wrote: adequate and efficient.

ESMA has launched the consultation on the revision of regulatory technical standards – RTS 1 equity and RTS 2 non-equity – on transparency requirements under MiFIR, addressing topics that do not require a prior change of MiFID II / MiFIR .

NBIM, which manages the NOK 11.4 billion (€ 1.15 billion) global government pension fund (GPFG), said in the letter that high-quality markets allow efficient trading in terms of size.

“Trading venues that operate under pre-trade transparency exemptions and regulated market auction processes can help institutional investors like us access more natural liquidity and limit the cost of trading. Equity trading as measured by the implementation deficit, ”the NBIM pair wrote in the letter.

“Limiting the cost to institutional investors trading European equities should be a regulatory concern for ESMA,” they noted.

The introduction of FBA to European markets was an important development, they said, and an example that constructive innovation could take place under current regulations.

While their overall deal volume is quite limited as a percentage of overall deal volume, Framnes and Vik said: Share of overall volume can indicate.

These auctions ran alongside the continuous order book, they said, unlike the periodic open or close auctions.

“We are concerned that requiring greater pre-trade transparency, in addition to the indicative price and indicative volume available when pairing under current regulations, may result in unfavorable price movements in the continuously informed market. “, they declared.

Low latency market participants would reflect transparent order imbalances in the informed market, the pair added, and reduce the likelihood of uncrossing in the auction.

“The main effect of the alternatives offered by ESMA will be to undermine FBAs and reduce optionality and competition in the market,” they said.

In addition to the topic of clarifying pre-trade transparency requirements for new types of trading systems, the review also includes the topic of providing more clarity on non-price-forming transactions and their reporting – which, according to the ‘ESMA, would help to get a better picture of the real split between informed and over-the-counter trading – and a recalibration of the commodity derivatives regime to give transparency requirements better suited to these instruments.

The consultation period ended on October 1.

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