12.V Conclusion

MiFID I reflected the view that, by abolishing the ISD concentration-rule and permitting choice in the area of trading and data services, the benefits of competition outweighed the potential risks. Aware of the fragmentation risks involved with a competitive market setting, MiFID I introduced a strict pre- and post-trade transparency regime for shares admitted to trading on an RM, which was also applicable to investment firms operating outside RMs and MTFs. The EU strategy was publication and consolidation of MiFID I pre- and post-trade data mainly based on market forces. ‘Mainly’, because MiFID I provided some rules to facilitate reliable, comparable, and timely data from the arrangements publishing the MiFID I pre- and post-trade data.1 CESR guidance supplemented the limited amount of MiFID I rules. CESR came to the conclusion it needed to assist in order to bridge the potential gap between regulation and market forces. In a series of guidelines and recommendations, CESR augmented the MiFID I-text, including on data quality, publication arrangements, and the availability of MiFID I pre- and post-trade data. The CESR guidelines and recommendations, although formally non-binding, urged market participants to take them into account when designing or upgrading their publication systems.2

The MiFID I-rules, as supplemented by CESR, can be characterized as a hybrid form of regulation. The MiFID I text was mainly bottom-up. The MiFID I text relied predominantly on market forces to ensure a reliable overview of trading activity. Contrarily, the CESR guidelines and recommendations were top-down in character. CESR’s guidance, although formally non-binding, resulted in extensive (not: complete) guidance from the EU level.

Experience with MiFID I shows that competition can bring substantial benefits in terms of investor choice, reduced explicit trading costs, and innovation.3 However, the MiFID I experience also shows that a competitive approach, combined with a hybrid strategy for publication and consolidation services, can result in data fragmentation and hampered data quality. As will be shown in the next chapter, the MiFID I approach, including the substantial amount of CESR guidelines and recommendations, proved to be unfit to ensure a reliable overview of trading activity. Market forces provided publication and consolidation services, but these were not of a quality that satisfied the market, especially not in the area of post-trade data.4 Not surprisingly, MiFID II adopts a more top-down approach compared to MiFID I. The MiFID II framework for publication and consolidation is examined below.