18.IV.1.3.10 Interim conclusion

Similar to MiFID I, MiFID II strives for a competitive trading landscape, albeit in a more restrictive manner through the share trading-obligation. Similar to MiFID I, MiFID II also uses equity post-trade transparency regulation as a means to achieve an integrated European market with a competitive market setting. Different compared to MiFID I is that MiFID II increases the amount of equity pre- and post-trade transparency regulation at the EU level (top-down).

The current MiFID II Review, in particular of ESMA, shows that MiFID II has only been partially successful in achieving its equity pre-trade transparency objectives. MiFID II enhanced equity pre-trade transparency by expanding the scope of the regime compared to MiFID I, but the overall level of equity pre-trade transparency is insufficient according to ESMA. To change the situation, ESMA is willing to tighten the MiFID II equity pre-trade transparency regime where deemed necessary. ESMA considers the option of having more shares concentrated on RMs and MTFs, the latter being subject to the strictest MiFID II equity pre-trade transparency rules. Stricter equity pre-trade transparency rules are proposed for SIs in order to enhance transparency and to improve the level playing field with RMs and MTFs. ESMA also proposes a stricter regime for frequent batch auctions, being a distinct equity pre-trade transparency classification. ESMA suggests more rules to clarify the MiFID II share trading-obligation, in particular to exclude third-country shares and clarify the exemptions. ESMA also supports a simpler framework for the double volume cap, if maintained (i.e. less EU regulation). In sum, the consequence of the increase in EU equity pre-trade transparency regulation under MiFID II is improved equity pre-trade transparency, but in view of ESMA not enough. The view of ESMA is understandable in light of more equity pre-trade transparency, an enhanced level playing field and a simpler regime. That being said, the ESMA proposals are controversial, since they can reduce competition and liquidity.

By contrast, the ESMA MiFID II Review shows that ESMA is overall positive about the MiFID II equity post-trade transparency regime. Transactions in shares and depositary receipts are mainly published in real-time (i.e. no deferral applies), which is beneficial for price formation. Although certain issues are identified (e.g. the large in scale-threshold for ETFs), the preliminary proposals of ESMA for the MiFID II equity post-trade transparency regime are relatively modest. ‘Relatively’ in comparison with the preliminary ESMA proposals for the MiFID II equity pre-trade transparency regime. The situation shows a pattern in EU equity pre- and post-trade transparency regulation ever since the competitive MiFID I market setting. While it is a well-accepted view of the EU to ensure equity post-trade data is published across a wide range of venues in a competitive market setting, complexity arises when it comes to equity pre-trade transparency on and outside RMs and MTFs. The reason here is that transparency for completed trades (post-trade) is less diverse compared to the different set of trading functionalities possible before executing a trade (pre-trade).

Finally, there is Brexit. A Hard Brexit (i.e. the UK leaving the EU without a withdrawal agreement) poses particular challenges for the data-driven elements and share trading-obligation of the MiFID II equity pre- and post-trade transparency regime. The MiFID II equity pre- and post-trade transparency regime relies on transparency calculations and databases. ESMA provided recommendations for a Hard Brexit, but acknowledges that the proposed solutions are not perfect (e.g. phasing out of UK data). ESMA wants to exclude third country shares from the MiFID II share trading-obligation (i.e. no extra-territorial reach), but it is controversial how to perform such an exclusion in practice. The controversial elements include whether or not to use an ISIN complemented by other criteria and whether or not to include dual-listed shares in the scope of the MiFID II share trading-obligation.