Summary

Part I addresses equity pre-trade transparency (chapters 2-5). Part I starts with a conceptual framework setting out the definition of ‘pre-trade transparency’ (chapter 2). The conceptual framework uses a two-dimensional definition of pre-trade transparency, being (a) pre-trade information (i.e. current orders and quotes) that is (b) published. As shown in chapter 1, ‘equity’ refers to shares, depositary receipts, ETFs, certificates and other similar financial instruments. As a result, ‘equity pre-trade transparency’ refers to information that is published for potential equity transactions. The conceptual framework then discusses types of pre-trade data. A distinction is made between pre-trade data in terms of (1) coverage, (2) speed, (3) depth and (4) identity (or anonymity). The conceptual framework then discusses the situation where pre-trade information is not made public, so-called ‘dark liquidity’ (including the narrower term ‘dark pool’). The conclusion is that dark liquidity plays an important role in financial markets (e.g. reducing information leakage), but that too much dark liquidity is harmful. Examples include a harmed price discovery process and reduced investor confidence. The challenge is therefore finding the right balance between pre-trade transparency and dark liquidity. The next step is what the optimal regulatory approach is to achieve the desired amount of transparency (top-down versus bottom-up). Finding the optimal regulatory approach is a complex task. The reason here includes different underlying market structures (e.g. concentrated versus fragmented national markets) and different political preferences (e.g. interventionist versus liberal) across the Member States of the EU.

Part I of the thesis then provides an analysis of the historical development of EU equity pre-trade transparency regulation from ISD to MiFID II (chapters 3-5). Part I of the research demonstrates an increase in EU equity pre-trade transparency regulation. The main argument for the increase in EU regulation from the ISD to MiFID II is the EU aim to achieve an integrated European capital market. The ISD intended to achieve this aim through restricted competition (optional concentration-rule). Accordingly, the EU deemed relatively little harmonised equity pre-trade transparency rules necessary under the ISD (trading would already be largely concentrated on Regulated Markets (RMs)). The situation changed where the EU intended to support competition across different types of trading platforms. This was evident under MiFID I where orders could be executed on RMs and Multilateral Trading Facilities (MTFs), but also outside these venues, such as through execution in-house, whether through (systematic) internalisation (e.g. SI) or agency crossing (e.g. so-called broker crossing networks). To ensure a sufficient overview of the market, as well as a level playing field, the EU decided to introduce top-down equity pre-trade transparency rules under MiFID I. MiFID II in turn changed several aspects of the MiFID I regime. Although MiFID I was generally considered a success in terms of competition, perceived shortcomings of MiFID I included the lack of equity pre-trade transparency. MiFID II intends to remedy the MiFID I-situation by providing an even more top-down equity pre-trade transparency regime. The result is an increase in EU equity pre-trade transparency regulation under MiFID II. The current MiFID II Review, in particular of ESMA, shows that MiFID II has only been partially successful in doing so. In sum, the consequence of the increase in EU equity pre-trade transparency regulation under MiFID II is better equity pre-trade transparency, but in view of ESMA not enough. The ESMA MiFID II Review reveals market-shaping (interventionist) elements, as reflected in ESMA proposals to ensure more trading takes place on equity pre-trade transparent venues.

In part II (chapters 6-9) I analysed equity post-trade transparency. A conceptual framework sets out the definition of (equity) ‘post-trade transparency’ (chapter 6). A two-dimensional definition for (equity) post-trade transparency is used, namely (a) post-trade information (i.e. information on completed trades) that is (b) published (for equity transactions). The types of post-trade data are then discussed, namely: (1) coverage (e.g. one or multiple platform), (2) speed, (3) volume and time of the trade, and (4) identity versus anonymous publication. The conceptual framework subsequently discusses the difference between immediate and deferred post-trade data publication. Whilst immediate post-trade data publication is key for aspects such as price formation, there may be several reasons to defer post-trade publication. The reasons include so-called inventory risk, being the situation where an investor takes a temporary risk position (inventory risk). Such investors (also ‘liquidity providers’) must control their inventories in order to trade profitably. One way of reducing inventory risk is by delaying the publication of post-trade data (deferral). The delay in post-trade data publication permits the liquidity provider to rebalance its position without letting the broader market know about the recently concluded trade. Although beneficial for the liquidity provider, the risk of deferral is that, through delayed post-trade data publication, the liquidity provider will have an information advantage over other investors (information asymmetry) and the price discovery process will not be up-to-date. The challenge for regulators is thus to find the ‘optimal’ degree of post-trade transparency, being the situation that optimally supports liquidity and investor protection. To tackle this challenge the regulator needs to make a complex assessment of different types of investors and financial instruments, as well as whether the post-trade transparency standard should be set through market forces (bottom-up) or regulatory intervention (top-down).

Similar to the situation for equity pre-trade transparency, the EU has in the past decades shifted towards a more interventionist (i.e. top-down) approach to ensure sufficient equity post-trade transparency. This is illustrated in chapters 7-9. From the ISD to MiFID II, the EU intends to leave little room – although some (e.g. deferral is permitted) – for market forces (bottom-up elements). The explanation for the increased EU equity post-trade transparency regulation is the same as for equity pre-trade transparency, namely the EU objective of establishing an integrated European capital market. A main question for the EU is whether the integration is better achieved through (a) concentrated trading on highly transparent trading platforms (ISD situation), (b) a trading landscape in which order execution platforms can compete and innovate, including in terms of transparency (MiFID I), or (c) a combination of both (MiFID II). MiFID II appreciates the competitive intentions of the MiFID I regime, but restricts trading through a share trading-obligation (somewhat similar to the ISD) and stricter requirements for (pre-trade and) post-trade data publication, such as through requiring faster post-trade data publication compared to MiFID I. The current MiFID II Review, especially of ESMA, shows that the MiFID II equity post-trade transparency regime is overall successful. Certain issues are identified (e.g. the large in scale-threshold for ETFs), but the suggested alterations of ESMA are relatively modest. ‘Relatively’ in comparison with the ESMA proposals for the MiFID II equity pre-trade transparency regime. The situation shows a pattern in EU equity pre- and post-trade transparency regulation ever since the competitive MiFID I market setting. While it is a well-accepted view of the EU to ensure equity post-trade data is published across a wide range of venues in a competitive market setting, complexity arises when it comes to equity pre-trade transparency on and outside RMs and MTFs. The reason here is that transparency for completed trades (post-trade) is less diverse compared to the different set of trading functionalities prior to a trade (pre-trade).

Where parts I-II address the entities responsible for publishing equity pre- and post-trade data, including data characteristics and time limits, part III (chapters 10-13) sets out who publishes and consolidates the equity pre- and post-trade data and in what manner. A conceptual framework is provided with an analysis of what types of publication and consolidation are possible (chapter 10). A distinction is made between two types of publication. The first type is where the platform where trading activity meets (resulting in equity pre- and post-trade data) publishes the data itself, such as through an RM publication infrastructure or the website of an SI. The second manner of publishing equity pre- and post-trade data is the situation where another party publishes the equity pre- and post-trade data, such as a data vendor or an RM or MTF. Besides publication, the conceptual framework discusses different types of consolidation. Consolidation refers to the practice of collecting published equity pre- and/or post-trade data and publishing the collected data in one place. The comparison of equity pre- and post-trade data is easier when equity pre- and post-trade information is consolidated. The thesis examines two central types of consolidation, namely the so-called ‘consolidated tape’ and ‘consolidated quote’. Given the MiFID II text, I argue that the most valid interpretation of a consolidated tape is where the consolidation of post-trade data is the key activity. A consolidated tape can collect and publish pre-trade information, but that is not what makes it a consolidated tape. Rather, a consolidated quote refers to the collection of pre-trade data from multiple sources and the publication of such information in one place. The conceptual framework then notes that, ideally, market forces (bottom-up) would lead to high quality publication and consolidation of equity pre- and post-trade data. However, there can be barriers preventing market forces to achieve such a result, such as high costs in setting up an adequate consolidated tape or consolidated quote. Regulation (top-down), or at least a combination of market forces and regulation, is therefore often necessary in order to ensure high quality published and consolidated equity pre- and post-trade data.

Next, also in part III, the historical development of EU regulation for publication and consolidation is discussed (chapters 11-13). On the whole, part III shows that from the ISD to MiFID II the EU moved from a bottom-up to a more top-down approach with respect to the publication and consolidation of equity pre- and post-trade data. The increase in EU regulation is linked to the EU equity market setting, namely: a concentrated versus a competitive (and in effect often fragmented) market. Under the ISD, publication and consolidation of equity pre- and post-trade data were primarily the domain of RMs. National law, as supplemented by RM rulebooks, provided the rules, instead of a harmonised EU approach (bottom-up). The ISD’s bottom-up approach was successful in terms of data quality. RMs monitored the published equity pre- and post-trade data carefully. In addition, since trading was concentrated on RMs, market participants often had a consolidated view of trading activity. However, market forces were not able, or at least not fast enough, in providing common publication standards. This posed a barrier to consolidation where an equity instrument was traded on multiple platforms (although fragmentation was limited compared to MiFID I and MiFID II). The EU also believed that the successful elements of the ISD relied on a costly precondition, that is – limited competition in the area of order execution and data services. MiFID I did not take the preconditions of the ISD for granted. The thesis shows that MiFID I introduced a competitive equity market setting, which required rethinking of the EU in terms of data publication and consolidation. To counter fragmentation risks, MiFID I introduced a strict pre- and post-trade transparency regime for shares admitted to trading on an RM. MiFID I mainly relied on market forces to provide for high quality equity pre- and post-trade data consolidation. ‘Mainly’, because the formal text of MiFID I covered some top-down elements to facilitate reliable, comparable, and available data from the arrangements making the MiFID I equity pre- and post-trade data public. CESR complemented the MiFID I text. In a series of guidelines and recommendations, CESR provided EU direction on data quality, publication arrangements, and the availability of data. The result was a hybrid form of regulatory intervention under MiFID I.

In a reaction to MiFID I, MiFID II intends to have the best of both worlds (ISD and MiFID I). Under MiFID II competition among trading platforms is permitted (albeit that share trading requires some concentration), while top-down elements are introduced to facilitate a reliable and accessible overview of trading activity in the fragmented market place. The top-down elements of MiFID II are in particular evident in the MiFID II regime for equity post-trade data publication and consolidation. MiFID II has introduced a regulatory framework for Approved Publication Arrangements (APAs) and Consolidated Tape Providers (CTPs), being authorised data reporting service providers that have the core task of publishing and consolidating equity post-trade data. The EU intends to hedge the risk of excessive regulation by permitting competition among APAs, respectively CTPs, as well as from non-CTPs. Accordingly, MiFID II can be characterised as a big push, rather than a complete EU mandate, towards a reliable and accessible overview of equity post-trade data.

MiFID II is less intrusive in the area of equity pre-trade publication. MiFID II provides choice in publication services for equity pre-trade data, which reflects the earlier MiFID I-regime. Nonetheless, MiFID II does introduce new top-down elements. APAs can provide additional publication services in the area of equity pre-trade data. In addition, several rules have been introduced to ensure reliable, comparable, and accessible publication of SI quotes. MiFID II is also less top-down for equity pre-trade consolidation compared to the MiFID II regime for equity post-trade data. Similar to MiFID I, MiFID II relies on industry-led initiatives to provide a consolidated quote for equity pre-trade data. However, two things have changed compared to MiFID I. First, MiFID II introduces several preconditions to support the establishment of consolidated equity pre-trade data services. The most notable example is the MiFID II requirements for publication arrangements, such as APAs. Second, MiFID II permits (not: obliges) CTPs to provide additional services in the area of equity pre-trade consolidation.

Part III ends with the MiFID II Review. Three main aspects of the MiFID II regime for equity data publication and consolidation are reviewed. The first and most important observation is that currently there is no CTP authorised under MiFID II. ESMA argues in favour of establishing a single CTP, including other key factors to ensure the CTP can be set up (data quality, mandatory contribution, mandatory consumption, and so forth). The second and related aspect is the potential establishment of a consolidated quote. The Commission observes the need for a consolidated quote, although the setting up of a consolidated quote seems even more complex compared to the establishment of a CTP (e.g. greater amount of data). Third, and finally, there is Brexit. The ESMA Review suggests that – despite Brexit – there is support among certain data users in setting up an EU27 CTP (in particular where UK data would be included). The situation of Brexit is, however, difficult to judge given the political uncertainty involved. What can be observed, from a more general point of view, is that ESMA and the Commission do not discard the fragmented EU equity market setting per se. While ESMA and the Commission consider options for a more concentrated market setting (reducing issues with the lack of a CTP), ESMA and the Commission also acknowledge the positive effects of competition (e.g. reduced explicit trading costs). In case the competitive (and in this case fragmented) equity market setting of the EU is retained, ESMA and the Commission seem willing to introduce a CTP (or even a consolidated quote) where deemed necessary.

Subsequently, in part IV, an analysis is made of the prices for equity pre- and post-trade data (chapters 14-17). The price of equity pre- and post-trade data is an important aspect of whether or not an equity market is transparent in practice. Too high prices for equity pre- and post-trade data would reduce the actual access to the data. For this reason, the conceptual framework (chapter 14) starts with an examination of data price variables. A distinction is made between three variables, namely: (a) the head count (how usage is counted), (b) use restrictions (e.g. internal versus external use), and (c) the type of equity data product (e.g. depth or latency of the data). Then, the conceptual framework examines four aspects that are relevant in determining whether data prices are ‘reasonable’. The four aspects are: (1) the costs of producing and disseminating equity pre- and post-trade data, (2) the profits a data supplier can make, (3) the extent of price discrimination (different prices for the same product), and (4) ownership of equity pre- and post-trade data. The conclusion is that it is difficult to assess what the production and dissemination costs of equity data products are, among other things, due to the debate on so-called joint- versus by-products (simply put, is data inherently linked to trading (joint product) or a separate item (by-product)) (aspect 1). The ability of data suppliers in making profits also depends on the perspective one takes, simply put a free market versus those arguing that the ‘free market’ relies on false preconditions, such as a lack of actual competition (aspect 2). Related to the profits of a data supplier is price discrimination (aspect 3). Price discrimination is not a problem by itself. However, economic and fairness considerations can make price discrimination problematic (e.g. where there is insufficient competition). There is also an intellectual property discussion concerning equity pre- and post-trade data (aspect 4). The debate is gaining new momentum in the EU due to the increase in demand for equity pre- and post-trade data. Technological development and the fragmentation of the EU equity markets have increased the value of equity pre- and post-trade data. Finally, the conceptual framework examines whether to use a bottom-up or top-down approach to achieve ‘reasonable’ equity pre- and post-trade data prices. From a theoretical perspective, relying on market forces (bottom-up) has the advantage of competition. However, market forces might be insufficient in light of fragmentation and a potential lack of comparable equity pre- and post-trade data products (i.e. no real competition).

The three chapters following the conceptual framework then discuss the development from the ISD to MiFID II in terms of EU regulation for equity pre- and post-trade data prices (chapters 15-17). Similar to parts I-III, part IV shows that the EU has from the ISD to MiFID II shifted towards a top-down approach for the regulation of data prices (i.e. more EU regulation). As noted, technological innovation and increased fragmentation resulted in increased demand for equity pre- and post-trade data. The result is compensation through more EU equity pre- and post-trade transparency regulation. Under the ISD equity pre- and post-trade data prices were mainly a matter of national law. ‘Mainly’, because CESR published guidance on data prices through broad standards on a ‘reasonable commercial basis’ for alternative trading systems. National law could in effect largely decide on the prices of equity pre- and post-trade data. In practice, RMs had a dominant position in the market for equity pre- and post-trade data (in particular due to the optional ISD concentration-rule). RMs often charged data prices on the basis of (1) a head count per-device for each end-user, (2) use restrictions (e.g. redistribution) and (3) the type of data (e.g. depth and latency). Data vendors – in addition to RMs – applied their own fees. There were concerns about the market power of RMs, but the issues were relatively mild due to the concentrated market setting. This is because it was often not necessary to buy (license) equity pre- and post-trade data from a wide range of venues (e.g. RMs) in order to obtain a consolidated view of trading.

Part IV then shows that the situation changed under MiFID I (chapter 16). MiFID I not only eliminated concentration of trading, but also the market concentration related to the data generated from those trades. In other words, MiFID I introduced competition in the area of trading and in the area for data publication services. To ensure that equity pre- and post-trade data would still be accessible in the potentially fragmented market, MiFID I introduced some top-down elements for equity pre- and post-trade data prices. MiFID I covered a broad principle requiring MiFID I equity pre- and post-trade data to be made available on a ‘reasonable commercial basis’. MiFID I provided no specifications on the requirement. CESR supplemented the MiFID I-rule by formally non-binding guidance. Most notably, CESR recommended RMs, MTFs, and investment firms (including SIs) to unbundle equity data from other services and/or data. On the whole, the amount of top-down regulation for equity pre- and post-trade data prices was limited. The MiFID I framework reflected the EU preference to rely mainly on a bottom-up approach. Competition among data suppliers was an important premise of the MiFID I framework to ensure ‘reasonable’ data prices.

As shown in part IV, MiFID II changes the MiFID I regime (chapter 17). MiFID II aims to lower equity pre- and post-trade data prices compared to MiFID I. For this reason, MiFID II has introduced three sets of data pricing-rules, namely: (1) separate pre- and post-trade data; (2) the specification of a reasonable commercial basis; and (3) free of charge data 15 minutes after publication. By introducing these three rule-sets, MiFID II can be characterized as more top-down compared to MiFID I. Nonetheless, the MiFID II data pricing provisions are light-touch in nature. MiFID II (a) leaves data vendors outside the scope, (b) covers principle-based provisions (leaving flexibility for MiFID II Data Suppliers), and (c) relies on competition among data suppliers to ensure ‘reasonable’ prices. The MiFID II rules are supplemented by ESMA guidance. The limited scope, flexibility through principle-based provisions, reliance on market forces, and the formally non-binding status of the ESMA guidance, makes the MiFID II framework for equity pre- and post-trade data prices light touch in nature.

The MiFID II regime for equity pre- and post-trade data prices is part of the MiFID II Review. ESMA observes that trading venues and data users have different opinions, whilst in the end agreeing that MiFID II has not delivered on its objective to reduce the price of equity pre- and post-trade data compared to MiFID I. Due to the conflicting views, the ESMA proposals are top-down, albeit in a limited fashion. The ESMA proposals concern a mix of legislative changes and supervisory guidance. The ESMA proposals include: (i) rule-based provisions (e.g. common market data terminology), (ii) a consideration of expanding the MiFID II scope (include data vendors currently falling outside MiFID II), (iii) stricter enforcement by NCAs, and (iv) removal of price discrimination. ESMA does not recommend price controls (e.g. ESMA/NCA approval) and/or price regulation (e.g. a revenue cap), but it does feature less intrusive top-down elements. On the whole, ESMA’s proposals intend to balance between competition in the area for data services versus the need for regulatory intervention. The Commission is currently verifying the ESMA observations and whether or not stakeholders agree with the ESMA proposals. Whatever the outcome of the Commission’s consultation will be, ESMA – as well as several other data users – show willingness to introduce new top-down elements for EU regulation with respect to prices for equity pre- and post-trade data.

Part IV closes with the statement that it is useful to think about the future consequences of increased EU equity pre- and post-trade transparency regulation for data prices. Leaving aside economic consequences, such as an impact on the freedom of data suppliers, a legal consequence is overlap with other areas of EU regulation, namely competition law and intellectual property law. The increase in EU equity pre- and post-trade transparency regulation over data prices suggests a rethink of EU equity pre- and post-trade transparency regulation. It seems desirable that the increase of EU equity pre- and post-trade transparency regulation in the area of data prices involves at least an assessment of whether competition authorities, rather than financial NCAs, are a better alternative to ensure data prices are ‘reasonable’. The current wait-and-see approach of the EU on ownership of equity pre- and post-trade data prices seems appropriate in this context. It is questionable whether intellectual property rights should be held within the domain of EU equity pre- and post-trade transparency regulation.

Parts I-IV are then followed by a synthesis (chapter 18). The aim of the synthesis is to increase the generality and applicability of the research findings from parts I-IV and to develop new knowledge through the process of integration. The first segment of the synthesis shows that EU equity pre- and post-trade transparency regulation can be defined in a narrow or broad way. Both definitions have their process and cons, but the broad definition suits best with the current EU situation. The current EU situation is characterised by a highly fragmented equity market and has been prone to technological innovation. A broad definition of EU equity pre- and post-trade transparency regulation suits best with this setting. This is because a broad definition includes all EU requirements for equity pre- and post-trade transparency, with the term ‘transparency’ being a genus that includes several species, such as mandatory disclosure, publication and consolidation arrangements, and the price of equity pre- and post-trade data. At the same time, the synthesis shows that a broad definition is not perfect. A main disadvantage is unclarity. Although better suited for the current EU situation, a broad definition of EU equity pre- and post-trade transparency regulation makes it hard to assess where the definition ends.

The second segment of the synthesis deals with the question why EU equity pre- and post-trade transparency regulation increased from the ISD to MiFID II. Three factors have been identified, namely: (1) market philosophies, (2) market structures, and (3) technological innovation. Concerning market philosophies, from the ISD to MiFID II a trend is observable in which the EU uses a more market-shaping (not: market-led) strategy. This means emphasis on EU regulation (not: market forces) in order to ensure sufficient price formation and liquidity, as well as a level playing field. While both the market-shaping and market-led philosophy prefer a high degree of equity pre- and post-trade transparency, there is no consensus what the ‘high degree’ constitutes. The market-shaping philosophy accepts exceptions to equity pre- and post-trade data publication only where they serve the protection (not: improvement) of investors. The market-shaping view is apparent in the timeframe ISD – MiFID II, which is characterised by an increase in EU equity pre- and post-trade transparency regulation that emphasizes the importance of transparency (not: exceptions).

Another factor relevant for the increase in EU equity pre- and post-trade transparency regulation is the market structure. Four factors of a market structure are (a) the market microstructure, (b) the amount of concentration (market macrostructure), (c) financial instruments, and (d) the preferences of market participants. The market structure results in a different view of the EU towards the necessity of EU equity pre- and post-trade transparency regulation. For example, where a financial instrument is traded only on one or multiple RMs (concentrated market setting), a less extensive scope of EU equity pre- and post-trade transparency rules has traditionally been deemed sufficient (e.g. the ISD equity pre- and post-trade transparency rules only applied to RMs). The contrary is the case in a fragmented setting. In a fragmented setting, the EU deems equity pre- and post-trade transparency regulation to be a useful tool to provide a snapshot of the fragmented market. Ever since MiFID I, the EU is trying to reduce the risks of a competitive market setting (fragmentation risks) by increasing the amount of EU equity pre- and post-trade transparency regulation. In other words, from ISD to MiFID II there has been a direct link between market structure and the increase in EU equity pre- and post-trade transparency regulation.

Technological innovation is the third and final factor that explains the increase in EU equity pre- and post-trade transparency regulation. Technological innovation resulted in several reactions from the EU that created new EU equity pre- and post-trade transparency rules. For example, the EU expanded the scope of EU equity pre- and post-trade transparency regulation to MTFs and SIs. MTFs and SIs are both trading platforms that arose thanks to technological innovation with the main aim being to compete with the traditional RMs. The EU responded by means of new EU equity pre- and post-trade transparency rules for MTFs and SIs. A related example is the increased demand for equity pre- and post-trade data. The rise of new trading platforms, such as MTFs and SIs, resulted in fragmentation. In addition, the shift from open outcry to ultimately algorithmic trading (including high frequency trading) requires more data. The EU acknowledges the increased data demand and has responded in the form of more EU equity pre- and post-trade transparency regulation for data prices.

Finally, the synthesis examined the question what the consequences of increased EU equity pre- and post-trade transparency regulation from the ISD to MiFID II have been. The consequences are examined by looking at how successful the ISD, MiFID I, and MiFID II equity pre- and post-trade transparency regimes were, respectively are. Eight main areas of success are the following:

The synthesis shows that there are also many areas in which the increase in EU equity pre- and post-trade transparency regulation has not been successful. These areas can be divided in three categories, namely: (a) too limited EU intervention, (b) an inadequate design of the rules, and (c) a too complex regime:

The results of the synthesis raise the question whether the benefits of increased EU equity pre- and post-trade transparency regulation outweigh the costs. In the thesis I argue that this question can only be answered from a holistic perspective. Almost all shortcomings of EU equity pre- and post-trade transparency regulation are related to the EU equity market structure. Changes to the EU equity market structure would solve a lot of equity pre- and post-trade transparency issues. A solution to change the EU equity market structure can be to: (1) only allow equity trading to take place on one or a few RMs and MTFs (i.e. mandatory concentration), (2) ensure strict RM and MTF equity pre-trade and post-trade transparency rules, and (3) do not allow RMs and MTFs to be profit-maximising. The result would be pooled liquidity (consolidated) and a high degree of equity pre- and post-trade transparency. Current shortcomings of MiFID II, in particular the lack of a data quality outside RMs and MTFs and the related lack of a consolidated tape (and consolidated quote), as well as the perceived lack of a level playing field between RMs/MTFs and SIs, would be solved. In addition, a concentrated setting would no longer require NCAs and ESMA to engage in complex data issues, such as collecting data from a wide range of venues in order to ensure the ESMA databases function in practice. In a concentrated market setting, the demand for equity pre- and post-trade data would probably drop, because data users would no longer be required to purchase equity pre- and post-trade data from multiple venues in order to obtain a trading overview. Because the interests of RMs and MTFs are not necessarily aligned with the interests of data users, the ability of RMs and MTFs to make maximised profits would have to be reduced. The aim here is to diminish the market power of RMs and MTFs to enable data users to obtain equity pre- and post-trade data at a ‘reasonable’ price.

While useful to solve many EU equity pre- and post-trade transparency problems, I argue that this solution has many pitfalls. It reminds somewhat of the ISD situation in which competition in the area of trading and data services was limited and there was only scarce investor choice and innovation. In fact, main innovations of the EU equity market (i.e. shift from open outcry to electronic trading) resulted from the UK situation in which trading platforms could compete before and under the ISD. The UK equity market under the ISD was also characterised by much more investor choice (e.g. internalisation) compared to the more concentrated market setting of France and Italy. In other words, a concentrated market setting has benefits, but it can also reduce the evolutionary spirit of the EU equity markets. Besides, limiting RMs and MTFs in being profit maximising can also harm innovation and investments in ensuring the published equity pre- and post-trade data is of high quality. A concentrated market setting also does not solve all questions related to EU equity pre- and post-trade transparency regulation. An example is how to deal with third countries in the current globalised trading setting. ESMA intends to ensure MiFID II has no extraterritorial effects, but it is highly contentious what an ‘EU situation’ is (e.g. how to deal with ‘dual-listed’ shares). A concentrated market setting in effect does not solve all problems of EU equity pre- and post-trade transparency regulation.

The final conclusion of the synthesis and therewith the research is that it should not be forgotten that MiFID I was a way forward for the EU equity market. This is because MiFID I opened up competition and gave freedom to market participants, including RMs, MTFs, and investment firms operating on and outside such venues. It is true that the competitive setting of MiFID I and MiFID II resulted in a fragmented market setting and high demand for equity pre- and post-trade data. This implies that a competitive market setting should be compensated by means of EU equity pre- and post-trade transparency regulation and, looking at the current shortcomings of MiFID II, potentially even more in the future. These observations suggest that the best way forward is somewhere in the middle. It could mean that more concentration of equity trading is necessary, but not to the same extent as under the ISD. In the end this is an economic assessment and ultimately a political one. The main observation from a legal point of view is that EU equity pre- and post-trade transparency regulation is a means to achieve an end, namely an integrated European capital market. This means that, while many problems of EU equity pre- and post-trade transparency regulation can be solved by means of a concentrated market setting and inability of RMs and MTFs to maximise profits, a holistic point of view is necessary to provide the final answer. This thesis intends to contribute in obtaining such a holistic point of view. The thesis intends to do so by providing the what, why, and consequences of one element of the EU equity market puzzle, namely EU equity pre- and post-trade transparency regulation.