However, ESMA’s proposed changes are less sweeping than required to achieve this aim.

By Rob Moulton and Anne Mainwaring

Should the Brexit transition period end without a UK equivalence decision, ESMA has issued guidance to limit the impact on the trading obligation for shares by assuming the following:

— All EU shares (EU Member State, Iceland, Liechtenstein, and Norway ISINs) will be within the scope of the EU STO. GB ISINs will be outside the scope of the EU STO.

— The trading of shares with an EEA ISIN on a UK trading venue in GBP by EU investment firms (which encompasses a narrow subset of total EU trading activity) will be outside the scope of the EU STO.

— Other ISINs should continue to determine STO application in accordance with the previous ESMA guidance published in November 2017.


On 26 October 2020, ESMA issued a statement about the impact on the trading obligation for shares (STO) under Article 23 of the Markets in Financial Instruments Regulation (600/2014) (MiFIR) following the end of the Brexit transition period on 31 December 2020.

Article 23 requires investment firms to trade certain classes of shares only on specified venues (i.e., a regulated market, MTF, systematic internaliser, or third-country trading venue assessed as equivalent by the European Commission). This requirement is not applicable to transactions in shares that are traded in the EU on a non-systematic, ad hoc, irregular, and infrequent basis.

ESMA stated that, if a decision by the European Commission regarding UK equivalence is not forthcoming, the potential adverse effects of applying the STO after the transition period ends are expected to be the same as in the no-deal Brexit scenario it published in May 2019. Therefore, ESMA’s earlier guidance is still relevant.

ESMA’s ISIN-Based Approach

In an attempt to reduce the potential impact of a no-deal Brexit, ESMA has published various iterations of its guidance narrowing the STO’s scope in March and May 2019. ESMA’s trajectory towards a less sweeping STO has been widely welcomed; however, some stakeholders have found the agency’s methodology for determining the STO’s scope to be wanting.

ESMA maintains the view that an STO approach based only on the share ISIN would most effectively minimise market disruption that conflicting EU and UK STOs may create. This view applies in particular to UK branches of EU investment firms and EU branches of UK investment firms. This approach is based on the assumption that all EU shares (i.e., ISINs starting with a country code corresponding to an EU Member State, as well as shares with an ISIN from Iceland, Liechtenstein, and Norway (collectively EEA ISINs)) are within the scope of the EU STO. GB ISINs are outside the scope of the EU STO. According to ESMA, this ISIN-based approach “would provide a balanced, objective and easily identifiable dividing line between EEA and UK shares”.

Yet the FCA has previously stated in response to ESMA’s May 2019 guidance that “the ISIN that a share carries does not and should not determine the scope of the STO” since some shares have their main or only centre of market liquidity outside the issuer’s country of incorporation. According to the FCA, ESMA’s ISIN-based approach “would place restrictions on a company’s access to investors and freedom to choose where they seek a listing on a public stock market”.

ESMA Introduces GB-Currency Based Exclusion

Still, ESMA has relied on its ISIN-based approach to introduce the key change in its most recent guidance — determining that the trading of shares with an EEA ISIN on a UK trading venue in GBP by EU investment firms will be outside the EU STO’s scope. The actual reach of this change, however, is far from sweeping.

ESMA stated in March 2019 that “considering the strong ties and interconnections between the UK and the EU27 financial markets, it cannot reasonably be assumed that all shares admitted to trading on a UK regulated market are traded on a non-systematic, ad-hoc, irregular and infrequent basis in the EU27 and are therefore out of the scope of the trading obligation.”

However, in its most recent guidance, ESMA determined that the trading of shares with an EEA ISIN on a UK trading venue in GBP by EU investment firms are limited in number (less than 50), and account for a small proportion (less than 1%) of the EU total trading activity. Accordingly, ESMA confirmed that those trades do occur on a non-systematic, ad-hoc, irregular, and infrequent basis and therefore, those trades will likely not be subject to the EU STO. Therefore, it appears that ESMA has limited the exclusion by currency that captures a relatively small subset of total EU trading activity, rather than applying a blanket non-systematic exclusion to the UK. Many investment firms will consider this move insufficient to address their concerns.

Limitations to an ISIN-Based Approach

ESMA’s guidance scopes both UK ISINs and EEA ISINs trading on a UK trading venue in GBP out of the EU STO. Crucially, however, ESMA has recognised that this approach (based only on the ISIN of the share) will minimise disruption and avoid overlaps only if the UK similarly adopts an approach that does not include EEA ISINs under the UK STO. ESMA has previously stated that “should EEA ISINs be included in the scope of the UK STO, this would introduce overlapping obligations and the potentially damaging consequences for market participants”. ESMA ultimately relies on the UK scoping out EEA ISINs under the UK STO in order for its plan to succeed; however, ESMA acknowledged in its most recent statement that the scope of the UK STO after the end of the transition period remains unclear.

So, while ESMA’s guidance makes significant strides in minimising the impact on the trading obligation for shares, it is not a panacea.


The application of the STO to shares with a different ISIN should continue to be determined by taking into account the previous ESMA guidance published in November 2017. Therefore, firms should ensure that the ultimate execution of the relevant orders complies with the requirements under Article 23(1) of MiFIR.

This post was prepared with the assistance of Michelle Taylor.