7.IV Conclusion about the ISD

The ISD was the first framework to introduce harmonised rules RMs and investment firms. The ISD was top-down when it came to the concentration of trading. Member States had the choice (not: the obligation) to require investment firms to undertake trades on an RM (provided exceptions did not apply). By contrast, the ISD was bottom-up when it came to post-trade transparency rules. The ISD post-trade transparency rules only applied to RMs (not: investment firms). The RM post-trade transparency rules of the ISD were minimum harmonized and the obligations were limited. The obligations and exceptions were broadly phrased. In effect, Member States and, where permitted by national regulation, the market (i.e. RMs and investment firms) had flexibility when it came to post-trade transparency.

After the ISD entered into force, equity trading overall remained the domain of the national RMs. Despite the bottom-up ISD post-trade transparency framework, RMs often published a high degree of post-trade data, whether imposed through national law or set by the RM itself (subject to Member State approval). The same was true for some (not: all) ATSs.1 Exceptions to the post-trade transparency obligations were in place to avoid unintended consequences following post-trade transparency publication, such as liquidity provision.2

Despite the high level of post-trade transparency, several regulatory issues arose. As will be examined in the next chapter, under the ISD there was only limited competition in terms of trading. Equity trading was largely concentrated on national RMs, in particular due to the optional ISD concentration rule.3 Second, the level of post-trade transparency varied substantially across the Member States. The Commission noted that after the ISD entered into force there were ‘enormous discrepancies’ in the level of transparency across RMs.4 This could, among other things, harm the level playing field across RMs in the EU. Third, technological developments resulted in new types of trading platforms, that is – ATSs and order internalising systems. The new trading platforms often fell outside the regulatory framework for RMs and instead classified as the less regulated ‘investment firms’. Level playing field and regulatory arbitrage risks arose, as well as the potential of a harmed price discovery process.5

The successor of the ISD, being MiFID I, intended to change this situation. MiFID I aimed to establish a competitive market. Post-trade transparency rules were an important part of the MiFID I framework. The MiFID I equity post-trade transparency regime is examined below.