MiFIR Market Structure

As the MiFIR debate continues, it is my view that there needs to be a more in-depth discussion around market structure. On 20th December 2022, the Council finalised their negotiating mandate with a press release saying that the revised text will strengthen market transparency. While the Commission’s stated aim is “improving transparency and availability of market data, improving the level-playing field between execution venues and ensuring that EU market infrastructures can remain competitive at international level”, the Council text does not, unfortunately, deliver on this in many of the key areas.

The simplification of the double volume cap into a single volume cap with an increased threshold from 8% to 10% and the removal of the negotiated trade waiver from the cap will result in more trading than before being allowed under the reference price waiver (RPW): this cannot be seen as an improvement in transparency. In addition, the Council text no longer includes the Commission proposal to limit the use of the RPW by any size threshold which would have prevented small retail trades being executed in the dark. This is a particularly poor outcome for European retail investors and savers.

Instead of improving the level playing field to enhance transparency and increasing the threshold of the quoting obligation of Systematic Internalisers (SI), the Council mandate removes this proposal and seems to remove the minimum quoting obligations altogether. The proposal creates more flexibility for the SI regime by allowing them midpoint matching, which prevents investors from participating in any possible price improvement, and amending the basis of the (SI) activity’s definition, making it a more subjective test. These amendments will actually create a much more un-level playing field between venues, favouring trading towards SIs and away from lit venues: this does not “improve the level playing field between execution venues”; on the contrary, it will have the opposite effect.

In our view, the cumulative effect from these changes will reduce transparency and encourage more bilateral trading, impairing the price formation process and damaging market quality, by fragmenting liquidity, increasing operational risk and increasing market search costs, all to the detriment of end investors. Surely this was not - and should not be - the intended outcome of the review of MiFIR?

We look towards the Parliament and subsequent trialogue negotiations to re-focus the debate back on the core elements of EU market structure – moving European capital markets forward towards its Capital Markets Union action plan – not further away from it. Do we want a market infrastructure environment with deep pools of liquidity across integrated lit markets with robust price formation processes, real price competition and accessible to all? Or do we want to move closer to a trading landscape where bilateral trading becomes the norm, resulting in more dark trading, less transparency, increased fragmentation and worse outcomes for the retail investor and market integrity? These are the important questions that we believe can and should be addressed in this MiFIR review. 

Good read on the #MiFIR debate Samantha Page!

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