18.III.4 Concluding remarks

This part of the synthesis shows 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.

Finally, technological innovation is an important factor for 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 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.