3.III.4 Background

The foregoing paragraphs show that the ISD covered no pre-trade transparency provisions for investment firms. ATSs and order internalising systems did not fall under the scope of the ISD pre-trade transparency rule. CESR provided pre-trade transparency standards for ATSs, but the CESR standards were broad and formally non-binding. CESR also did not address pre-trade transparency requirements for order internalising systems. At least three reasons can be given that explain the bottom-up approach of the EU:

First, ATSs and order internalising systems were only a small phenomenon when the ISD was being drafted, as well as several years after the ISD entered into force.1 The Commission only addressed the role of new trading platforms in considering potential changes to the ISD.2 The FESCO paper on new trading platforms arrived in 2000, as followed by the CESR standards for ATSs in 2002. It appears that the EU did not feel a pressing need to intervene during the early stages of the ISD. The CESR standards of 2002 were the first serious attempt towards an EU approach for ATSs. The first time the EU formally addressed ATSs and order internalising systems came only under MiFID I (see chapters 4 and 8).3

Second, during the ISD drafting process it became clear that the ISD would include an optional concentration-rule. The ISD would permit Member States in requiring concentration of trades on pre-trade transparent RMs. RMs were in turn subject to the ISD and in particular national pre-trade transparency regulation (potentially supplemented by the RM rulebook).4

Third, and finally, national regulation enabled Member States to require potential trades of investment firms under the rules of RMs to be reported to, and subsequently be published by, RMs. As a consequence, the Member States could limit pre-trade data publication by investment firms.