18.III.1.4 Interim conclusion

Two market philosophies have been dominant from the ISD to MiFID II. On the one hand, there is the so-called market-led philosophy (also: model), which is inspired by a principle of freedom. The market-led model favours investment firms to decide where orders are executed, as long as best execution-obligations are met. Emphasis is on market forces (not: EU regulation) to achieve the equity pre- and post-trade transparency objectives. On the other hand, there is the market-shaping philosophy (also: model). The market-shaping model is inspired by a principle of equality. Similar pre- and post-trade transparency should be available for all investors (in particular retail compared to institutional) and trading platforms (e.g. RMs, MTFs, and SIs) should be able to compete under a level playing field (i.e. similar, or at least fairly similar, transparency rules should apply across the market). To achieve equality, the market-shaping philosophy had traditionally preferred a concentrated market of regulated venues, including RMs. An underlying assumption of the market-shaping philosophy is that best execution is most adequately achieved on a concentrated market where liquidity is pooled and potential (pre-trade) and actual (post-trade) transactions are transparent.1 Regulatory intervention is seen as an important instrument to achieve equity pre- and post-trade transparency objectives. 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. Brexit will result in a void in the market-led camp. It is difficult to predict how political dynamics will evolve, but unless the supporters of the market-led philosophy are able to fill the void of the UK, it could very well be that future EU equity pre- and post-trade transparency regulation will have more market-shaping elements.