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A Guide for MarketMakers on ETFplusEffective 4th March 2019
aryRegistration ProcessMonitoring and efits to being a SpecialistRequirementsObligationsIT set upHow to become a SpecialistResignation of statusAdvanced Liquidity Provider (AdLP)113.13.23.33.43.53.6111212131414Benefits to being an AdLPRequirementsObligationsIT set upHow to become an AdLPResignation of statusMiFID II Market Maker154.14.24.34.44.54.6151515171818Benefits to being a MiFID II Market MakerRequirementsObligationsIT set upHow to become a MiFID II Market MakerResignation of status5.0Explanation of Monitoring186.0Contacts and Links196.1 Contacts6.2 Links19192
1.0 IntroductionBorsa Italiana’s ETFplus market is an order-driven environment, with integratedmarket maker liquidity provision, delivering stable two way prices, along with aminimum size and maximum spread obligation. The liquidity of each instrumentlisted on the ETFplus market is supported by at least one market maker; aSpecialist, and potentially several other voluntary market makers.This document acts an informative guide for all three types of Market Makers,detailing; the benefits, requirements, technical set up and the process tobecome a Market Maker.This document is applicable to members that are currently providing liquidity onthe ETFplus market, or are aiming to do so, through the posting and maintainingof firm quotes, complying with the specific presence, size, spread andcomparable size obligations (detailed within this guide).1.1 ScopeThe scope of this document applies to all ETFs, ETCs and ETNs listed onBorsa Italiana’s ETFplus market.1.2 SummaryThere are three types of Market Makers who can provide liquidity, in terms oftwo way prices and minimum size, to the instruments listed on the ETFplusmarket:-A Specialist (S)-Advanced Liquidity Provider (AdLP)-MiFID II Market Maker (MiFID II MM)3
The below table summarises the key points for each Market Making scheme. Amore granular explanation can be found under the relevant section of eachscheme within this document.SpecialistAdvanced LiquidityProviderMiFID IIMarket MakerMotivationMandatory for listing, Providing additionalMiFID II marketappointed by theliquidity voluntarily.making strategy.issuer. RequirementThere can beThere can beof one Specialist per several AdLPs perseveral MiFID IIinstrumentinstrumentMMs per instrumentQuotingobligationDuring openingauction (from 9:02),Continuous tradingcontinuous trading,onlyvolatility auction andclosing auctionDailycompliancerateObligationsduring ntinuous tradingonly60%55%50%Max. spreadMin. countervalueMax. spread Smax spreadMin. countervalue: 10,000Max. spread Smax spreadMin. countervalue: 5,000The aboveobligations are setper instrument –there is nostandardisationamong instrumentsAll ETFplusinstruments willfollow the aboveobligationAll ETFplusinstruments willfollow the aboveobligationNotice shouldensure the continuityof the functionNo restrictionsNo restrictions4
Quote lityAuctionExceptionalcircumstancesNamed quotes andnamed ordersAnonymous quotes Anonymous quotesand/or standardand/or standardordersordersSpread obligation is doubled and size obligation is reduced by50%Spread obl. doubledand size obl. isreduced by 50%No obligationsNo obligationsSizeobligationcheckTotal buy countervalue Min coutervalue obligationTotal sell countervalue Min countervalue obligationSpreadobligationcheck(VWAP Sell – VWAP Buy) divided by(VWAP Sell VWAP Buy) / 2 Max SpreadComparablesize checkMax (Total Buy Quantity, Total Sell Quantity) MaxMin (Total Buy Quantity, Total Sell Quantity) MinIf ( Min ( Max / 2 )) Then test has failed1Regardless of the Market Making scheme, the member must develop the relevant message ontheir trading system to conform with the relevant parameters and successfully pass the relevantset up test. For more information, please contact Client Technology Services.5
CompID2CompID “D” isCompID “M” isallowed to sendallowed to sendorders andorders andanonymous quotes. anonymous quotes.CompID “S” isallowed to sendnamed orders andquotes to theCompID “F” isCompID “L” isrelevant instruments allowed to sendallowed to sendonlyorders only, for the orders only, for therelevant instruments relevant instrumentsonly.only.ApplicationWritten undertakingMember PortalMember Portal1.3 Registration ProcessThe process to become a Market Maker differs depending on the type of MarketMaker a member wishes to apply for.To apply for status as a Specialist, the member must be appointed by therelevant issuer and only then, may they apply for such status through adedicated Specialist form. The Specialist form can be found in the instructionssection on Borsa Italiana’s website, here (Section: “Applications for admissionto listing and the documentation to be attached”).Please note that there are twoseparate Specialist forms, one for ETFs and one for ETCs/ETNs.To apply for status as either an Advanced Liquidity Provider or MiFID II MarketMaker, the member must apply within the Member Portal.More information on how to become each type of Market Maker can be found inthe relevant section within this document.The list of current Market Makers are published on Borsa Italiana’s website.2The member must decide which CompID they would like to be set up with when joining therelevant scheme. It is not possible to operate with different Comp IDs from the same MarketMaking scheme, i.e. for AdLP activity, the member must decide CompID “D” or “F”, it is notpossible to have both. .6
1.4 Monitoring and ReportingMarket Makers will be monitored continuously by Borsa Italiana.Each Market Maker will have a daily compliance rate, with the assessmentcalculated on a monthly basis.Each Market Maker can consent to Borsa Italiana providing performance relateddata to the relevant issuer(s), for those relevant instruments which they aresupporting.2.0 SpecialistA Specialist will be required to place compulsory comparable bid and ask orderswhich respect a maximum spread and minimum countervaule. There can onlybe one specialist per instrument – the specialist is to be appointed by therelevant issuer.2.1 Benefits to being a SpecialistSpecialists will receive a total exemption from the trading fees for transactionsderiving from the fulfilment of trading specialist obligations.Specialists are also granted a number of free of charge transactions per second(tps), which is dependent on the number of instruments supported as Specialist.Number of instruments for which the specialist hasundertaken to support liquidity forTotal number oftps1 – 5050 tps51 – 150100 tps150 200 tpsThe free tps are attached to the specialist CompID only.7
2.2 RequirementsThe Specialist must be appointed by the relevant issuer.2.3 ObligationsSpecialist obligations are defined by Borsa Italiana.-Obligation to display bid and ask prices continuously.The Specialist shall comply with the obligation to enter simultaneousbuy and sell orders for comparable quantities.-Obligation to display a minimum size.The Specialist must honour the obligation to display a minimum size forthe instruments which it supports as Specialist.Each instrument has a defined minimum size. Borsa Italiana classifieseach instrument into one of three liquidity categories (see table below).Borsa Italiana defines the minimum size for each instrument in relationto the liquidity category. The instrument is categorised into one of thethree liquidity categories on the basis of the liquidity assessment of theunderlying.MinimumCountervalue (Euro)SpreadL150,000Min: 3% - Max: 6%L2100,000Min:1% - Max: 3%L3200,000Max: 1%During stressed market conditions as well as during volatility auction,the size is reduced by 50%.8
-Maximum spread obligation.The Specialist’s orders have to be entered at comparable competitiveprices, i.e. the bid and ask prices must not diverge by the maximumspread. The maximum spread obligation is defined per instrument onthe basis of the liquidity category which the instrument is in (as per theabove table). The spread obligation is assessed according to thefollowing formula:(VWAP Sell – VWAP Buy) divided by (VWAP Sell VWAP Buy) / 2 Max SpreadDuring stressed market conditions as well as during volatility auction,the spread is doubled.-Comparable size obligationThe Specialist must make sure that the total bid size orders does notdiverge more than 50% against the total ask size orders, according tothe following formula:Max (Total Buy Quantity, Total Sell Quantity) MaxMin (Total Buy Quantity, Total Sell Quantity) MinIf ( Min ( Max / 2 )) Then test has failed-Temporary suspensions.In exceptional circumstances, declared by Borsa Italiana’s TradingSurveillance department, the Specialist may submit a request to BorsaItaliana for the suspension of quoting obligations for those instrumentswhich they are a Specialist for.Borsa Italiana constantly updates the table on their website which summarisesthe minimum size and maximum spread obligations for each financialinstrument traded on the ETFplus market.More information on Specialist obligations can be found in Borsa Italiana’sGuide to the Parameters.9
Specialists are required to adhere to their obligations for 60% of each tradingday. The assessment takes also into account Specialist’s compliance withobligation during auction phases (for the opening auction, from 9:02 since theSpecialist presence is mandatory from 9:02). The assessment will be calculatedand disseminated on a monthly basis.The daily compliance rate will be calculated in terms of four e size .2.4 IT set upTransactions entered to fulfil the quotation obligations must be “Named Quotes”or “Named Orders”. “Named Quotes” allow the specialist to contextually submitbid and ask orders, whilst also identifying the orders as coming from aspecialist.New specialists must test the “Named Quote” or “Named Order” or bothfunctionalities before starting the activity. Specialist is to decide whichfunctionality they will be using.Specialists are given a dedicated interface (CompID “S”) to the market that canbe used for specialist activity only and only for the instruments which theysupport as Specialist.2.5 How to become a SpecialistThe Specialist must be appointed by the issuer for the relevant instrument(s)and only then, can they proceed with signing the agreement to become aSpecialist, which is signed through a dedicated Specialist form.10
The Specialist form can be found within the instructions section on BorsaItaliana’s website, here.2.6 Resignation of statusIn order for a Specialist to terminate the agreement to fulfil their obligations as aSpecialist, Borsa Italiana must be notified in writing at last three months beforethe effective date of the termination. Borsa Italiana may accept shorter notice ifthe continuity of the Specialist function is ensured by another entity entering intothe undertakings of the obligations to be fulfilled by the Specialist for therelevant instrument(s).It is the responsibility of the issuer to ensure that there is an entity available toreplace the current Specialist for the relevant instrument(s) prior to thetermination of the current Specialist’s agreement.More information can be found in Borsa Italiana’s rules.3.0 Advanced Liquidity Provider (AdLP)An AdLP, as a voluntary Market Maker, will be required to provide liquidity byplacing comparable competitive bid and/or ask orders on their own account,which respect a maximum spread and minimum countervalue. As the AdLPscheme is voluntary, there may be unlimited AdLPs per instrument. An entitycan freely apply to be an AdLP for any instrument.3.1 Benefits to being an AdLPAdLPs will receive a 100% discount on their passive executed orders, providedthat on the instrument(s) they are registered as an AdLP, they: i) achieve a 20%share of trading (calculated as AdLPs turnover as a percentage of the totalturnover for the instrument, multiplied by 2) and ii) respect quoting obligationsset by Borsa Italiana.AdLPs will also receive 50tps free of charge if they support more than 50instruments as an AdLP.11
Number of instruments for which the AdLP hasundertaken to support liquidity forTotal number oftps1 – 500 tps50 50 tpsAn AdLP will see the discounted trades in their monthly bill.3.2 RequirementsNo requirements. An entity must only sign the agreement with Borsa Italiana,which is managed through Member Portal. An AdLP can voluntary apply tosupport the liquidity of any instrument.3.3 ObligationsAdLP obligations are defined by Borsa Italiana.-Obligation to display bid and ask prices continuously.The AdLP shall comply with the obligation to enter simultaneous buyand sell orders for comparable quantities.-Obligation to display a minimum size.The AdLP must comply with the obligation to display a minimum size of 10,000 for all instruments in which they support as an AdLP.During stressed market conditions, the size is reduced by 50%.-Maximum spread obligation.The AdLP must comply with the same maximum spread obligation thatis set for the Specialist for the instrument(s) they support as an AdLP.12
Specialist’s spread can be found on our website, here.The spread obligation is assessed according to the following formula:(VWAP Sell – VWAP Buy) divided by (VWAP Sell VWAP Buy) / 2 Max SpreadDuring stressed market conditions, the spread is doubled.-Comparable size obligation.The AdLP must make sure that the total bid size orders does notdiverge more than 50% against the total ask size orders, according tothe following formula:Max (Total Buy Quantity, Total Sell Quantity) MaxMin (Total Buy Quantity, Total Sell Quantity) MinIf ( Min ( Max / 2 )) Then test has failedAdLPs are required to adhere to their obligations for 55% of each trading day.The quotes displa
4.0 MiFID II Market Maker 15 4.1 Benefits to being a MiFID II Market Maker 15 4.2 Requirements 15 4.3 Obligations 15 4.4 IT set up 17 4.5 How to become a MiFID II Market Maker 18 4.6 Resignation .
