5.VII.2.3 Interim conclusion

ESMA proposes – in conjunction with a stricter equity pre-trade transparency regime for RMs/MTFs – to tighten the SI equity pre-trade transparency obligations. The aim of the ESMA SI proposals is to enhance the level playing field between RMs/MTFs and SIs and to increase equity pre-trade transparency, in particular given the growth of SIs under MiFID II. At the same, ESMA acknowledges the position risks SIs face due to trading on own account (in executing client orders). This is, for example, apparent in the final ESMA position not to require SIs to quote for illiquid equity instruments. The final ESMA proposal reflects a longstanding tradition in EU equity pre-trade transparency regulation, namely: the balance between price formation/a level playing field versus liquidity provision. Ever since MiFID I, finding this balance has been complex. While price formation can enhance liquidity and a level playing field is important for fair competition, too much transparency can harm liquidity provision by investment firms trading on own account, in this case SIs.1 Similar perspectives are apparent in the ESMA MiFID II Review. Nonetheless, from a historical perspective, the emphasis on price formation and a level playing field is growing. MiFID I introduced a loose SI-regime, which MiFID II tightened. ESMA is willing to tighten the SI reigns even further, as apparent in the ESMA MiFID II Review.