18.IV.1.1.2 Disadvantages of the ISD approach

The foregoing does not mean that there were no concerns. The Commission observed ‘enormous discrepancies’ in the equity pre- and post-trade data published across the Member States.1 Along similar lines, FESCO observed the risks of inconsistent pre- and post-trade transparency rules across the Member States. FESCO mentioned that the ISD approach had potential fragmentation risks, such as a harmed level playing field (less transparent venues could ‘free-ride’ on the transparency as published by the transparent venues).2 FESCO’s concerns included the rise of alternative trading systems and order internalising systems. Both could harm price formation, since these platforms were not always subject to high standards of pre- and post-trade transparency rules.3 FESCO provided informal guidance to ensure RMs would publish equity pre- and post-trade data beyond the ISD requirements.4 In the context of alternative trading systems and order internalising systems, FESCO proposed a short-term solution by introducing pre- and post-trade transparency rules for alternative trading systems and order internalising systems, whilst acknowledging that a market consultation was necessary for the long-term approach.5

A few years later, CESR (the formal successor of FESCO) proposed more detailed measures. CESR proposed formally non-binding, but highly authoritative and detailed, standards for alternative trading systems. The CESR standards included, among other things, equity pre- and post-trade transparency rules for alternative trading systems, aligned with the RM requirements.6 The aim of CESR was to ensure sufficient equity pre- and post-trade transparency across the Member States, as well as a level playing field between RMs and alternative trading systems.7