18.III.1 Factor 1: Market philosophies

A market philosophy determines how the ‘optimal degree’ of equity pre- and post-trade transparency is (a) perceived and (b) should be achieved. Two market philosophies can be distinguished from the ISD to MiFID II. On the one hand, there is the so-called market-led philosophy. The market-led philosophy is inspired by a principle of freedom. The market-led philosophy, as led by the UK and typically including the Netherlands and the Nordic Member States, favours investment firms to decide for themselves where orders are executed, as long as best execution-obligations are met. Emphasis is on market forces to achieve the equity pre- and post-trade transparency objectives (bottom-up). On the other hand, in continental Europe, as led by France and typically including Italy and Spain, a concentrated trading setting has traditionally prevailed. The underlying assumption of the market-shaping philosophy is that best execution is most adequately achieved on a concentrated market.1 Regulatory intervention is seen as an important instrument to achieve equity pre- and post-trade transparency objectives (top-down). Both market philosophies prefer a high level of transparency, but differ on what the high degree of transparency constitutes and by whom it needs to be published. The following paragraphs explain the market philosophies in more detail.