ISDA responds to MiFID II on liquidity definition

On July 31, ISDA responded to the ESMA discussion paper and consultation paper on MiFID II/MiFIR. The executive summary signposts the key issues which include our recommendations on the assessment of liquidity, commodity derivatives markets, transaction reporting, systematic internalisers and indirect clearing. The comment letter is available here.

A summary in Risk Magazine: “Isda’s members believe that, in order for an instrument to be considered liquid, it must be actively trading 15-40 times per trading day and on at least every trading day. Trading less frequently than once per trading day, or not trading on all trading days, does not accord with continuity of buying and selling set out in the definition of a liquid market in article two of Mifir,” the Isda comment letter states.

Using criteria suggested in the letter, this could translate in practice into a regime that catches less than half of trades in the interest rate swap market. The industry’s fear is that market-makers will find themselves unable to hedge at a reasonable price if they have to disclose trades in instruments that trade infrequently.

The Risk article is available here.

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