17.VI Conclusion about MiFID II

MiFID II has introduced more EU regulation with regard to the price of equity pre- and post-trade data compared to MiFID I. The MiFID II framework consists out of three sets of rules, namely: (1) the unbundling of equity pre- and post-trade data (disaggregation), (2) the specification of a reasonable commercial basis, and (3) free of charge equity pre and post-trade data 15 minutes after publication. The MiFID II intention is to reduce prices compared to MiFID I, especially in the area of equity post-trade data. The idea is that lower prices support access to (equity) pre- and post-trade data. In turn, such access supports the broader MiFID II goal of making the European equity markets more transparent.

The MiFID II regime for equity pre- and post-trade data prices is more top-down compared to MiFID I. Nonetheless, the current MiFID II framework is light-touch. The three sets of MiFID II rules leave flexibility for data suppliers. First, data vendors (i.e. non RMs, MTFs, SIs, APAs, or CTPs) fall outside the scope of the MiFID II rules for the price of equity pre- and post-trade data. Second, the MiFID II Data Suppliers (i.e. RMs, MTFs, SIs, APAs, and CTPs) have flexibility through (a) principle-based rules (e.g. ‘reasonable margin’) and (b) intellectual property rights of the market data (instead of also permitting a market participant to a trade to sell the data about the trade in question). Third, MiFID II relies on competitive forces to correct potentially unreasonable equity pre- and post-trade data prices through disclosure-rules. RMs, MTFs, SIs, APAs and CTPs need to disclose information about the prices and related terms and conditions to obtain the equity pre- and post-trade data (i.e. the transparency plus approach). The underlying premise of MiFID II is that data users can correct ‘unfair’ prices themselves, whether through a dialogue with the MiFID II Data Supplier, litigate on the matter, or choose another data supplier instead. In short, the limitation in scope (no data vendors), the flexibility of those under the scope (principle-based), and market forces to determine prices (supply and demand for equity pre- and post-trade data), make the MiFID II pricing-rules light touch in nature.1 The light touch regime of MiFID II is understandable in light of the advantages that competition for data products can bring and the complexity in setting price controls (e.g. revenue caps) at the EU level.

Although understandable, ESMA observes that so far MiFID II has not delivered on its objective to reduce the price of equity pre- and post-trade data. ESMA believes it is important to change the situation, given that the value of equity pre- and post-trade data increased due to technological innovation and the fragmented EU equity market. The ESMA MiFID II Review covers several proposals to change the current situation. At the same time, ESMA acknowledges that the feedback received on the MiFID II regime for equity pre- and post-trade data prices present conflicting views of trading venues and data users/data vendors. Due to the conflicting views, the ESMA proposals are top-down, but in a limited fashion (a mix of legislative changes and supervisory guidance). In short, ESMA recommends (a) moving from a principle-based to a rule-based approach (e.g. harmonised market data policies), (b) considering an extension in scope (i.e. include data vendors under the MiFID II scope) and (c) stricter enforcement of the MiFID II pricing provisions by NCAs. ESMA does not propose pricing regulation (e.g. a so-called LRIC+) and/or price controls (prior approval of the NCA) at this stage, which would be even more top-down in nature.2

The Commission’s MiFID II consultation wants to verify the ESMA observations and assess whether or not there is agreement with the ESMA proposals. Even though the ESMA MiFID II Review is not binding and the Commission’s has not yet published final proposals, some remarks can be made about the potential future direction. The ESMA MiFID II Review suggests that top-down elements in EU equity pre- and post-trade transparency regulation are still gaining momentum. ESMA intends to leave room for market forces, but suggests to take a more EU-led approach. The final question is what consequences the increase of EU equity pre- and post-trade transparency regulation will have for the future. Leaving aside economic implications, such as an impact on the freedom of data suppliers, a legal consequence is overlap with other areas of EU regulation, namely competition law and intellectual property law. ESMA proposes to limit price discrimination and to let the MiFID II pricing rules be enforced by financial NCAs. Price discrimination is a traditional topic of EU competition law and one can wonder whether or not a competition authority (instead of an NCA) is better suited to enforce the provisions. In addition, some market participants argue that the data suppliers (e.g. RMs and MTFs) should not have the rights of equity pre- and post-trade data, in essence being an intellectual property discussion.

The EU has not yet provided a final answer to these questions. However, the increase in EU equity pre- and post-trade transparency regulation over data prices suggests a rethink of EU equity pre- and post-trade transparency regulation. At a minimum, the increase of EU equity pre- and post-trade transparency regulation in the area of data prices requires an assessment of whether competition authorities, rather than financial NCAs, are a better alternative for ensuring the data prices are ‘reasonable’.3 The current wait-and-see approach of the EU on ownership of equity pre- and post-trade data prices seems appropriate. It is questionable whether intellectual property rights should be held within the domain of EU equity pre- and post-trade transparency regulation. Whatever the case may be, the prioritization of data prices has resulted in a broader notion of what EU equity pre- and post-trade transparency regulation is, namely: also accessible equity pre- and post-trade data (‘reasonable’ data prices).