ESMA pursues reforms to trading rules

In the wake of recent stress events in the market, the proposals also include new circuit breaker requirements for trading venues.

In the paper, ESMA noted that while trading circuit breakers generally worked well in the face of the market volatility that accompanied the pandemic, episodes of extreme volatility in commodity derivatives markets during the 2022 European energy crisis and a flash crash in the same year highlighted the need for reforms in this area.

ESMA is proposing new principles-based requirements for these trading security measures while maintaining some scope for trading venues to calibrate their own circuit breakers.

It also seeks to set standards for the disclosure to investors by trading venues of the details of their mechanisms to stop or curb trading. And it proposes standards for reporting to regulators about the calibration of circuit breakers.

Overall, the proposals are intended to increase transparency and systemic resilience in financial markets, reduce the regulatory reporting burden and promote convergence in regulatory oversight, ESMA said in the paper.

“Once approved, these standards will facilitate the implementation of the consolidated tape provider (CTP) in the European Union as well as contribute to a more informative pre- and post-trade transparency regime,” the regulators said.

In addition, by streamlining reporting requirements, the proposals aim to promote efficiency and competitiveness in European financial markets, ESMA said.

The deadline for providing feedback to the consultation is 15 September for certain technical provisions and 15 October for other aspects of the proposals.

ESMA said it aims to finalize the technical requirements by the end of the year and the other requirements by March 2025.

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