18.IV.1.2.7 Interim conclusion

MiFID I introduced more EU regulation concerning mandatory equity pre-trade and post-trade data publication compared to the ISD. EU equity pre- and post-trade transparency regulation was in place to ensure that investors were adequately informed as to the true level of potential (pre-trade) and actual (post-trade) transactions in shares admitted to trading on an RM, whether those potential and actual transactions took place on RMs, MTFs, SIs, or outside those trading venues.1 The MiFID I equity pre- and post-trade transparency rules were part of the broader MiFID I framework to promote competition between trading platforms for execution services. The EU considered a high degree of equity pre- and post-trade trade transparency as an essential part of the MiFID I framework, so as to ensure a level playing field between trading platforms, the price discovery mechanism in particular shares was not impaired by fragmented liquidity, and investors thereby not penalised.2 On the other hand, MiFID I recognised that there could be circumstances where exemptions from pre-trade and post-trade transparency obligations, whether through waivers, only for liquid instruments, or deferral, could be necessary. MiFID I therefore set out a pre- and post-trade transparency regime intending to balance between the merits of a high level of pre-trade and post-trade transparency and liquidity not being impaired as an unintended consequence of the MiFID I pre-trade and post-trade transparency obligations.3

The research shows that MiFID I was partially successful in achieving its aims. MiFID I was considered as a main enhancement on the ISD.4 MiFID I was successful in terms of increased competition, lower explicit transaction costs, and enhanced investor choice.5 That being said, several problems were identified with MiFID I. First, the competitive approach resulted in market fragmentation, which made the equity trading environment more complex, including for an overview of the potential (pre-trade) and actual (post-trade) transactions in the market.6 Second, technological developments outdated several MiFID I provisions. For instance, investment firms operating internal electronic matching systems, so-called broker crossing networks, emerged. Despite sometimes being functionally similar to RMs/MTFs or SIs, such investment firms were not subject to the same MiFID I pre-trade transparency regime (MiFID I post-trade transparency rules applied). Regulatory risks arose in terms of a lack of a level playing field, potential harm to the price formation process and the disability to observe current trading opportunities across the European equity market.7 Third, the amount of dark trading (i.e. trading without pre-trade transparency) grew under MiFID I, among other things, due to regulatory arbitrage and legal unclarity. Fourth, the timing of post-trade data publication was considered to be too slow, including the length of deferral.8 Fifth, and finally, the text of MiFID I required substantial CESR guidance in order to ensure the adequate functioning of the operational MiFID I equity pre- and post-trade transparency. To ensure consistency across the EU, CESR supplemented the MiFID I text by guidance on data collection, calculation, and publication.