18.III.1.3 Impact of Brexit for EU market philosophies

The departure of the United Kingdom (UK) from the EU (Brexit) can have a great impact on the market philosophies and accordingly the EU direction. From the ISD to MiFID II the UK has traditionally been a strong supporter of the market-led (not: market-shaping) philosophy. Under the ISD, the UK was the leading nation in opposing EU post-trade transparency rules for RMs, while the same was true for the MiFID I pre-trade transparency rules for SIs and the display of unexecuted client limit orders outside RMs and MTFs.1 The UK is also a strong opponent of the MiFID II double volume cap,2 illustrating the UK’s preference to not only protect, but also to improve the positions of market participants through opaque trading. The departure of the UK will therefore create a void in terms of the market-led philosophy, which can have great implications for future EU equity pre- and post-trade transparency regulation. It is difficult to predict how political forces will respond to this void. However, unless the market-led camp is able to fill the political void, it could very well be that future EU equity pre- and post-trade transparency regulation will have more market-shaping elements. This would involve a strong emphasis on transparency disclosure, exceptions for investor protection (not: improvement), and EU regulation (top-down approach).3 It is difficult to judge whether such a trend would be preferable, given that there is no single universally accepted transparency regime. However, one can conclude with certainty that Brexit will result in the loss of strong supporter of the market-led philosophy. The UK has traditionally taken substantial efforts in defending a market-led perspective, thereby influencing the final position of equity transparency regulation under the ISD, MiFID I, and MiFID II.