4.II.1.5.1 Goals

The Commission acknowledged the importance of pre-trade information during the ISD-review. The Commission indicated that pre-trade information enables the market to obtain the true level of potential transactions, thereby supporting ‘best execution’ and efficient price-formation.1 A similar view was reflected in the high degree of equity pre-trade transparency across RMs of many individual Member States under the ISD. As examined in the previous chapter, RMs often published a high degree of equity pre-trade data, whether under national law or RM rulebooks.

What changed from the ISD to MiFID I, however, was the (envisioned) market landscape. Whereas the ISD was characterized by concentrated trading on national RMs, MiFID I had the ambition to create a competitive market. To achieve the competitive market setting under MiFID I, the EU wanted, among other things, to abolish the optional ISD concentration-rule. To address the potential fragmentation risks, the Commission proposed to introduce highly harmonized equity pre-trade transparency regime under MiFID I. The Commission believed that, judged from the perspective of best execution or efficient price formation, it would not be enough to know the conditions under which the last trade was concluded (post-trade transparency). The Commission said that the best deal for the last trade would provide no guarantee of similar terms for the next deal. Hence, in view of the Commission, pre-trade transparency information needed to be available – alongside MiFID I post-trade transparency requirements.2

Elements of the Commission’s proved to be contentious. The contentious nature was in particular evident when it came to MiFID I equity pre-trade transparency rules for investment firms operating outside RMs and MTFs. The complexity concerned the differences between types of order-execution in a fragmented market setting. Whereas pre-trade transparency requirements for RMs and MTFs was relatively uncontroversial (i.e. operators of RMs and MTFs face no position risks), the situation was different for investment firms operating outside RMs/MTFs. Hence, the European Parliament argued, among other things, that equity post-trade transparency (not: pre-trade transparency) would be the most effective way to identify ‘best execution’, because post-trade data shows the range of prices that are actually being obtained in the markets.3

Whatever the case may be, the competitive – and in effect potentially more fragmented – market setting of MiFID I increased the importance of harmonized equity pre-trade transparency obligations at the EU level. Harmonised equity pre-trade transparency for RMs and MTFs were relatively uncontroversial during the MiFID I negotiations.4 The latter was apparent in the final MiFID I framework. MiFID I was far more encompassing (top-down) when it came to harmonized pre-trade transparency regulation compared to the ISD. The most encompassing equity pre-trade transparency rules applied to RMs and MTFs. As will be shown in section III-IV below, political compromise was necessary to achieve agreement on pre-trade transparency rules for SIs and the client limit orders outside RMs/MTFs.5