9.VII Conclusion about the development from the ISD to MiFID II

On the whole, part II of the research (chapters 6-9) illustrates the increase in top-down equity post-trade transparency regulation from the ISD to MiFID II. Whereas the ISD equity post-trade transparency framework was rather bottom-up, the succeeding regimes have resulted in a flood of EU equity post-trade transparency rules, in particular under MiFID II. The explanation for 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 or (b) a trading landscape in which order execution platforms can compete and innovate, including in terms of (limited) transparency.

The ISD restricted competition (optional concentration-rule). RMs would due to the optional ISD concentration-rule retain a strong position under the ISD. Where trades are concentrated on RMs, the EU did not view top-down (EU) equity post-trade transparency regulation as acute. RMs would have strong incentives to display equity post-trade data in order to attract order flow. Although not entirely clear due to political compromise, the EU was satisfied with broad and minimum harmonised equity post-trade transparency rules for RMs under the ISD.

The situation changed with MiFID I. The EU wanted to enhance competition across different types of trading platforms under MiFID I. MiFID I permitted trades to be concluded on RMs and MTFs, but also by investment firms trading outside such venues. To ensure a sufficient overview of trading activity, as well as a level playing field between the different trading platforms, the EU introduced top-down MiFID I equity post-trade transparency rules. The MiFID I equity post-trade transparency rules were designed to mitigate fragmentation risks, as well as to ensure that investment firms would have sufficient incentives to commit capital and deepen liquidity. In applying the rules, MiFID I aimed to find a balance between a high degree of equity post-trade data publication versus deferral of post-trade publication to ensure investment firms dealing on own account could unwind their risk positions.

MiFID II appreciates the intentions of the MiFID I regime. MiFID II also strives for a competitive trading landscape, albeit in a more restrictive manner through the share trading-obligation.1 Similar to MiFID I, MiFID II also uses equity post-trade transparency regulation as a means to achieve an integrated European market with a competitive market setting. However, MiFID IIincreases the use of equity post-trade transparency regulation at the EU level (top-down). This is a reaction to MiFID I. Although MiFID I was generally considered a success in terms of competition, perceived shortcomings were apparent as to equity post-trade data quality, timeliness, and comparability. To remedy the situation, MiFID II has expanded the scope of the equity post-trade transparency regime, introduced rule-based provisions on equity post-trade details and timing, and increases the role of ESMA in the deferral process. Similar to MiFID I, MiFID II intends to find a balance between the merits of post-trade transparency versus the possibility for to lay off risk positions through permitting deferral of post-trade publication. However, MiFID II does so in a more top-down manner by increasing the amount of EU equity post-trade transparency regulation.

The current MiFID II Review, especially of ESMA, shows that the MiFID II equity post-trade transparency is overall successful. Transactions in shares and depositary receipts are mainly published in real-time (i.e. no deferral applies), which is beneficial for price formation. Although certain issues are identified (e.g. the large in scale-threshold for ETFs), the preliminary proposals of ESMA for the MiFID II equity post-trade transparency regime are relatively modest. ‘Relatively’ in comparison with the preliminary 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 possible before executing a trade (pre-trade).