8.V Conclusion about MiFID I

MiFID I introduced several top-down elements with respect to equity post-trade transparency compared to the ISD. The top-down elements were in place to ensure that investors were adequately informed as to the true level of actual transactions in shares admitted to trading on an RM, whether those transactions took place on RMs, MTFs, or outside those trading venues.1

The equity post-trade transparency rules were part of the broader MiFID I regime designed to promote competition between order-execution platforms. The EU considered a high degree of post-trade transparency as essential for the competitive framework, so as to ensure a level playing field, the price discovery mechanism in particular shares was not impaired by fragmented liquidity, and investors thereby not penalised.2 On the other hand, the EU recognised that there could be circumstances where deferral of post-trade publication could be necessary. Under certain conditions, MiFID I permitted RMs and MTFs to defer post-trade data publication of trades taking place through their systems. Investment firms trading outside an RM or MTF could defer publication under the same conditions. The MiFID I possibility for deferral was in place to preserve liquidity by permitting investment firms trading on own account time to lay off their position risks. MiFID I set out an equity post-trade transparency regime intending both to ensure a high level of pre-trade transparency, and to ensure that liquidity was not impaired as an unintended consequence of post-trade data publication.3 The introduction of new EU equity post-trade transparency rules went accompanied by a new operational quality in the form of EU rules for data collection, calculations and estimates, and EU databases.

As we will see below, MiFID I was partially successful in achieving its aims. On the one hand, MiFID I was considered as a main enhancement on the ISD.4 MiFID I was successful in terms of increased competition, lower transaction costs, and enhanced investor choice.5 On the other hand, several problems were identified with MiFID I. The competitive approach resulted in market fragmentation, which made the equity trading environment more complex, including for an overview of the potential transactions in the market.6 Secondly, the quality of post-trade data had deteriorated under MiFID I. This was especially the case for trades that were published by an RM under the ISD and under MiFID I concluded by an investment firm trading outside an RM/MTF. Third, the timing of post-trade data publication was considered to be too slow, and deferrals were seen as too long.7 Fourth, and finally, several issues were encountered with the operational nature of the MiFID I equity post-trade transparency regime. As the following chapter will set out, MiFID II is a reaction to this situation. One of the main objectives of MiFID II is to enhance the amount of post-trade transparency compared to MiFID I, while keeping pace with the data-driven nature of the regime (i.e. operational quality). MiFID II intends to achieve these objectives whilst preserving a competitive market place for equity trading.