The International Capital Market Association has warned that it is important for some kind of road-testing regime for the use of systematic internalisers, the new venues that will be introduced in the European Union next year.

The MiFID II regime prohibits broker crossing networks and instead requires all firms committing capital to trades to use systematic internalisers. EU authorised investment firms will be classified as SIs for a financial instrument where they deal on their own account, OTC, on an organised, frequent and systematic, and substantial basis in that instrument. These thresholds are based are on trading data for individual instruments which are set by the European Securities and Markets Authority.

Anne Plested, head of EU regulation change at Fidessa, warned that Esma has still not released details of these thresholds, She said in a blog that the EU regulator has released some project documents this week related to the financial instruments reference data system.

“Under MiFID I Esma says there are around 230 regulated markets and multilateral trading facilities submitting reference data today,” she added. “On top of that, for sizing purposes, working estimates are based on up to 60 new OTFs/SIs by January – a potentially significant impact on the liquidity landscape going into 2018.”

OTFs are another type of new MiFID II venue for trading non-equities.

Plested continued that Esma has also yet to provide important details of instrument data for MiFID II such as which instruments are in scope, which are classed as liquid, what is large in scale and where the equity dark volume caps will fall.

The regulations also extend the pre- and post-trade transparency obligations into the over-the-counter space for non-equities, including bonds. The SI rules come into effect in September next year but authorised firms can also “opt in” to become designated SIs for particular financial instruments from 3 January 2018, when MiFID II starts.

As a result of this lack of data, ICMA recommended in its latest quarterly report that the market should be able to create a “virtual” SI regime under which sellside firms can test various scenarios with clients and trade as if they were an SI (without opting into the regime) before September 2018.

“Firms must make clear to their clients that this is a road test and that they do not in fact have SI status,” said ICMA.

Some of the scenarios which could be tested include how to inform clients that firms are an SI for a particular instrument, per legal entity and per currency: how to provide firm pre-trade SI quotes publicly, the need for SI quotes to have an identifier and its ability to carry through to straight-through processing and be flagged in post-trade reporting.

“Some firms have not yet decided whether they will or will not be an SI,” added ICMA. “By testing the full end- to-end SI process, firms will have the data to make a more informed decision as to whether or not they should become an SI, come September 2018.”