Systematic Internalisers (SI): Current State of Regulation under the MiFID II/MiFIR Review and BaFin Practice

The legal framework for Systematic Internalisers (SI) has been significantly revised as part of the MiFID/MiFIR review: from a redefinition of the SI concept to the removal of pre-trade transparency for non-equity instruments and adjustments to the quoting obligation. This article provides an overview of the key changes.

What is a Systematic Internaliser (SI)? – Revised Statutory Definition

The term “Systematic Internaliser” (SI) is a technical concept in financial supervisory law. It refers to Market Participants who provide liquidity to other Market Participants outside regulated trading venues (OTC) on a more than insignificant and ongoing basis, i.e. by offering to buy and sell.

From a regulatory perspective, however, the statutory definition is decisive. This is set out in Section 2 of the German Securities Institutions Act (WpIG). Following the MiFID review, systematic internalisation now refers to the organised, frequent and systematic dealing on own account in equity instruments by executing client orders outside a regulated market, MTF or OTF, without operating a multilateral system. The status of SI may also be assumed voluntarily.

The above definition is based on the new wording of the SI definition in MiFID (Directive (EU) 2024/790), which must be transposed into national law by 29 September 2025. The German implementation was initially included in the draft of the Second Future Financing Act (ZuFinG II), which the coalition government introduced to the Bundestag in early 2025. However, the act was not passed due to the new elections. Nevertheless, BaFin is already applying the new definition.

The revised definition of systematic internalisation brings two key changes. First, it is now limited to the trading of equity instruments (shares, depositary receipts, exchange-traded funds, certificates and other comparable financial instruments). The original definition also covered non-equity instruments (bonds, structured financial products, emission allowances and derivatives). Second, the definition no longer requires trading to take place on a significant scale; frequent and systematic trading remains, however, a prerequisite.

Removal of Thresholds: Qualitative Assessment Instead of Quantitative Calculation

Previously, the parameters “frequent and systematic trading” and “trading on a significant scale” required quantitative calculations, with the methodology laid down by the European Commission in Delegated Regulation (EU) 2017/565 (MiFID II DR). This created a considerable administrative burden for both investment firms and ESMA. Firms that were not already classified as SIs had to analyse their trading activity on a quarterly basis and compare it against reference data. ESMA, in turn, had to determine this reference data and make it available to firms. Ultimately, this bilateral effort led to the abandonment of quantitative SI calculations (Recital 7, Directive (EU) 2024/790).

This shift occurred even before the transposition deadline (29 September 2025). ESMA had already stopped publishing the data as of Q4 2024. Accordingly, BaFin did not pursue infringements of the reporting obligation under Section 79 sentence 1 WpHG, despite the fact that the statutory provisions on quantitative SI calculations formally remained in force.

Under the new SI definition, a qualitative assessment must now be made as to whether trading is frequent and systematic. To date (as of 27 September 2025), no regulatory specification of this now qualitative concept has been issued. BaFin therefore enjoys a certain margin of discretion.

German Investment Firm Regulation | KRONSTEYN

Pre-Trade Transparency: Removal for Non-Equity Instruments

One of the most significant regulatory obligations of Systematic Internalisers (SIs) is their duty of pre-trade transparency under MiFIR. Pre-trade transparency means the immediate publication of current bid and offer prices at which the SI is willing to enter into transactions with its clients. The statutory obligation generally applies to price quotes relating to standard market size; quotes for large-in-scale transactions are exempt from publication.

Previously, the pre-trade transparency obligation applied to both equity instruments (shares, depositary receipts, exchange-traded funds, certificates and other comparable financial instruments) and non-equity instruments (bonds, structured financial products, emission allowances and derivatives). The obligation differed depending on the instrument class but was in principle designed for both.

With the implementation of the MiFIR review, the pre-trade transparency obligation for non-equity instruments has been abolished without replacement. The European legislator justifies this partial removal of pre-trade transparency on the grounds that quotes for non-equity instruments are tailored to individual clients and therefore provide little informational value to others (Recital 14, Regulation (EU) 2024/791).

For equity instruments, the obligation of pre-trade transparency continues to apply. Likewise, the obligations of post-trade transparency remain in force for both equity and non-equity instruments.

Pre-Trade Transparency for Equity Instruments Applies up to Twice the Standard Market Size

Previously, SI pre-trade transparency obligations for equity instruments applied only when executing client orders up to the standard market size (SMS) of the respective instrument. ESMA determines the SMS in accordance with Delegated Regulation (EU) 2017/587 (RTS 1) and publishes the results annually.

Since the MiFIR review, pre-trade transparency no longer ceases at the SMS threshold. Instead, according to ESMA’s draft amendment to RTS 1 (ESMA74-2134169708-7636), the decisive threshold will be twice the standard market size. At the same time, the SMS will in future be calculated on the basis of more differentiated criteria, which will tend to lower the resulting sizes.

Minimum Quoting Volume Raised to Standard Market Size

Before the implementation of the MiFIR review, SIs were required to provide firm quotes in equity instruments amounting to at least 10% of the standard market size. Under ESMA’s draft amendment to RTS 1 (ESMA74-2134169708-7636), the minimum quoting volume is now to correspond to the full standard market size.

Publication of Quotes on Reasonable Commercial Terms

Die Veröffentlichung von Vorhandelsinformationen von Systematischen Internalisierern (SI) gegenüber anderen Marktteilnehmern als den Kunden des SI muss zu „angemessenen kaufmännischen Bedingungen“ erfolgen. Bisher hat die ESMA nähere Anforderungen hierzu durch eine Leitlinie geregelt (ESMA70-156-4263). Im Rahmen des MiFIR-Reviews hat der Gesetzgeber die Europäische Kommission ermächtigt, die näheren Anforderungen durch delegierten Rechtsakt zu regeln. Dadurch möchte er erreichen, dass die betroffenen Institutionen „nicht in der Lage sind, Gebühren für Daten entsprechend dem Wert, den die Daten für einzelne Nutzer darstellen, zu erheben“ (ErwG 12 VO (EU) 2024/791).

German Investment Firm Regulation | KRONSTEYN

Status of a Designated Publishing Entity

For over-the-counter (OTC) transactions between investment firms, Delegated Regulation (EU) 2017/587 (RTS 1) previously determined which of the two counterparties had to report the trade without delay to an approved publication arrangement (APA). Where one of the counterparties was an SI, only the SI was required to make the disclosure. According to the European legislator, this led some investment firms to opt voluntarily for SI status in order to handle trade reporting on behalf of their clients (i.e. as part of a service package). This, in turn, resulted in disproportionate requirements for those firms (Recital 15, Regulation (EU) 2024/791). MiFIR now enables investment firms to obtain the status of a designated publishing entity. If, under this new regime, only one party to a trade has such status, that party alone is required to report the transaction to an APA. Under ESMA’s planned amendment to RTS 1 (ESMA74-2134169708-7636), SI status will no longer be relevant in this context.

Synchronisation of Clocks Used

Previously, only trading venue operators (including stock exchanges) and their members or participants were required under MiFID, via national implementing rules, to synchronise the clocks used in business operations in accordance with Delegated Regulation (EU) 2017/574. This Level 1 obligation has now been transferred into MiFIR and henceforth also applies, among others, to SIs. The aim is to ensure meaningful comparability of timestamps reported by different entities in the context of data consolidation (Recital 20, Regulation (EU) 2024/791).

Legal Advice on Trading and Post-Trade Structures

The German/EU law firm Kronsteyn specialises in legal advice on all forms of trading and post-trade structures for securities and derivatives. Your contact: attorney-at-law Dr Hendrik Müller-Lankow.