18.IV.1.2.4 MiFID I Review: equity pre-trade transparency outside RMs and MTFs

In terms of trading outside RMs and MTFs, the estimation was that approximately 35 percent of trading outside such venues was dark.1 The latter was the result of the limited use of the SI regime, the related increase in so-called broker crossing networks, and other investment firms falling outside the scope of the MiFID I pre-trade transparency rules.2 Technological developments (e.g. the rise of high frequency trading) and regulatory changes (i.e. MiFID I gave freedom where to execute orders, provided this was within best execution-boundaries) resulted in the increase of dark trading outside RMs and MTFs.3 Investment firms trading outside RMs and MTFs, which did not qualify as an SI, were not subject to a distinct pre-trade transparency regime (except for the client limit order display-rule).4

While controversial, the final EU opinion is that the amount of pre-trade transparency outside RMs and MTFs was too limited.5 To change the situation, the EU wants any trading system in financial instruments, such as broker crossing networks, to be properly regulated under MiFID II and authorised as an RM, MTF, or SI.6 The EU is also of the view that under MiFID I the regime for SIs needed to be fine-tuned. The EU tightened the SI-definition, while also introducing harmonized (MiFID II) rules in terms of a minimum and firm quotes.7 The EU also introduces a share trading-obligation under MiFID II. The MiFID II share trading-obligation reflects the view that trading should take place on pre-trade transparent venues (RM, MTF, SI or equivalent third-country trading venue).8