11.V Conclusion about the ISD

The ISD concentration-rule, as well as national rules requiring trades to be published through the publication arrangements of an RM, had the effect of consolidating pre- and post-trade data primarily on RMs. This not only gave RMs control over the market in trading, but also over the market in the data generated from these trades. A benefit of this approach was that market participants overall had a consolidated view of trading. In addition, since RMs monitored the data to be reliable and published in real-time, pre- and post-trade data was as generally of high quality and timely. Here the bottom-up approach of the ISD, leaving national law and market forces to decide on data publication and consolidation, can be described as successful.

Nonetheless, two comments need to be made here. First, market forces were not able to adopt common publication formats and protocols, which posed a barrier for consolidation. CESR stated that the progress of market forces in this area was too slow. Common publication formats and protocols, or better stated: the lack thereof, was an area in which the bottom-up approach of the ISD was not fruitful. Second, the consolidated view of trading activity was only possible due to restrictions of the ISD and national law on competition. The successful elements of the ISD bottom-up approach can in part be attributed to the ISD concentration-rule and protectionist national law, which in turn limited competition in terms of (1) order execution platforms and (2) data publication and consolidation services. It is questionable whether the benefits of the concentrated setting of the ISD outweighed the costs of limited competition.

In sum, experience with the ISD shows that a bottom-up approach for publication and consolidation of equity pre- and post-trade data can be successful in several (not: all) areas, but that its achievements can come at a high cost. A necessary precondition under the ISD was concentration of trading on one (or a few) trading platforms, thereby excluding competition, innovation, and investor choice. As will be shown below, the EU did not take this precondition for granted under MiFID I. MiFID I introduced a competitive market setting. The competitive market setting resulted in a new EU strategy with respect to equity pre- and post-trade data publication and consolidation.