In November 2016, FIA EPTA submitted its comments to the European Securities and Markets Authority (ESMA) regarding its discussion paper on the trading obligations for derivatives under MiFIR.
The rationale for executing package transactions is to isolate specific risks of a financial instrument by combining it with one or more correlated financial instruments. Packages increase market efficiency and lower transaction costs for buy-side end users who use the financial markets for risk management or asset allocation purposes.
To achieve the goal of lowering execution costs and improving price discovery, FIA EPTA advises ESMA to carefully calibrate the framework for determining which packages are liquid. In our view, the initial proposed framework is a good start and ESMA has specifically highlighted many of the most common types of packages that are traded in the market. However, we believe certain improvements can be made, both with respect to eliminating overly restrictive criteria where appropriate and adding additional criteria where appropriate. Where possible, the framework should not be unnecessarily rigid and should instead take into account the continued evolution of the market.
