18.III.1.2 Market-shaping philosophy

The market-shaping philosophy is at the other side of the spectrum. Main points of focus of the market-shaping philosophy are price formation, investor protection, and centralised liquidity. The market-shaping philosophy is inspired by the principle of equality. Investors should be able to trade on equal terms (e.g. retail investors should have similar access to equity pre- and post-trade data compared to institutional investors), whilst trading platforms (i.e. RMs, MTFs, and SIs) should be able to compete under a level playing field (i.e. similar or at least fairly similar transparency rules where possible). The market-shaping philosophy has traditionally intended to achieve equality through a centralised market setting, whether through (i) concentration of trading and/or (ii) consolidation of equity pre- and post-trade data. Under the ISD, the market-shaping philosophy emphasised concentration of trading on highly transparent venues (RMs under the ISD), a belief that was abandoned under MiFID I, but which has slightly reemerged under MiFID II (share trading-obligation).1 The market-shaping philosophy emphasizes transparency rules, consolidation entities, and reasonable data prices, in particular (but not only) where fragmentation risks might arise due to a competitive setting. The market-shaping philosophy recognises transparency risks for liquidity, but mainly in relation to investor protection, not in terms of investor improvement (e.g. the market-shaping philosophy rejects the ability to negotiate a better deal through dark trading).2

Another central feature of the market-shaping philosophy is the emphasis on EU intervention. EU intervention can take multiple forms, such as (a) setting harmonised EU rules for equity pre- and post-trade transparency publication, (b) establishing EU publication or consolidation entities (or at least an EU framework),3 and/or (c) data pricing rules. The idea here is that EU intervention ensures a sufficient degree of price formation, a level playing field, lower costs for cross-border trading, and similar access to equity pre- and post-trade data across Member States (e.g. data pricing rules), given the harmonisation involved. Another belief here is that market-led solutions will not always be sufficient to achieve transparency goals. Naturally, a market failure, as well as a subsidiary and proportional approach are regarded as necessary for EU intervention. However, EU intervention is sooner accepted in the market-shaping philosophy compared to the market-led one.4