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Implementing MiFID2: The View of a Cash Equities Trading Venue

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Equity Markets in Transition

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Abstract

MiFID1 has been published ten years ago. Its review focuses on the fixing of its loopholes and imperfections, but also on the strengthening of market integrity and financial stability. MiFID2 introduces new provisions regarding algorithmic trading and HFT. It strengthens transparency for trading venues by introducing volume caps for regulated dark pools. It also strengthens transparency in bilateral trading as it introduces a trading obligation for shares, which will shift bilateral trading away from the OTC space. In concert with this, investment firms that trade frequent, systematic and substantial with their clients on a bilateral basis will have to obtain SI status, providing more transparency than it is the case today. Despite these developments that will improve the market structure for cash equities, there are also some potential pitfalls which could be avoided during the implementation of the Level 2 measures and before MiFID2 provisions becomes effective.

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Notes

  1. 1.

    EU Parliament and Council [1].

  2. 2.

    EU Commission [2].

  3. 3.

    EU Commission [3].

  4. 4.

    EU Parliament and Council [4].

  5. 5.

    EU Parliament and Council [5].

  6. 6.

    EU Council [6].

  7. 7.

    MIFID1 was the cornerstone of the Financial Services Action Plan (FSAP). The FSAP was an EU initiative running from 1999 for a period of 5 years. It aimed at improving the single market for financial services. See EU Commission [7].

  8. 8.

    The purest form of the concentration rule pre-MiFID1 was found in France, Spain and Italy. Weaker forms—such as exchange precedence rule—were observed in Germany, whereas the UK had a de facto concentration rule in the form of obligation to report any off-exchange trade through the post-trade reporting facilities of the London Stock Exchange.

  9. 9.

    MiFID1 (2004/39/EC), recital 53.

  10. 10.

    Chi-X was acquired by BATS in 2011 and runs as “BATS Chi-X Europe” since. It has become a regulated investment exchange in May 2013.

  11. 11.

    See Harris ([8], p. 533).

  12. 12.

    For an overview about the reasons of the adverse price movements see, e.g., Harris ([8], p. 324–325).

  13. 13.

    ESMA [9].

  14. 14.

    A total of 12 firms were registered as SIs in the MiFID database as of January 2015: thereof 8 from the UK, 2 from Denmark and 1 each from France and Italy.

  15. 15.

    Gomber, Lutat, Pierron and Weber [10].

  16. 16.

    Source: Fidessa.

  17. 17.

    Schwartz ([11], p. 340).

  18. 18.

    EU Commission [12].

  19. 19.

    EU Commission [13–15].

  20. 20.

    EU Parliament and Council [4, 5].

  21. 21.

    See MiFID2 (2014/65/EU) Article 4(1) (23) and Article 20.

  22. 22.

    EU Commission ([13], p. 8, and Article 4).

  23. 23.

    See MiFIR, Article 5.

  24. 24.

    According to MiFID Database (inquiry on 5 January 2015). Out of 111 shares that qualify the criteria of liquid German shares, the only exemptions are Allianz, Münchener Rück and Volkswagen, each with an SMS of 15,000 Euro.

  25. 25.

    MiFIR Article 20.

  26. 26.

    EU Commission ([12], p. 6).

  27. 27.

    EU Parliament and Council [16].

  28. 28.

    ESMA [9].

  29. 29.

    Roth and Budimir [17].

  30. 30.

    EU Commission [14].

  31. 31.

    MiFID2 (2014/65/EU) Article 49.

References

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Further Reading

  • EU Commission website on MiFID 1 and MiFID 2: http://ec.europa.eu/finance/securities/isd/index_en.htm

  • Foresight (2012): Economic impact assessments on MiFID II policy measures related to computer trading in financial markets. Foresight, UK Government Office for Science Working Paper. Ref: 12/1088

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  • Gomber, Peter and Beneidkt Jaeger (2014): MiFID: Eine systematische Analyse der Zielerreichung. In: Zeitschrift fuer Bankrecht und Bankwirtschaft, 2014 No. 1, pp. 40–53; 2014

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Authors and Affiliations

  1. Deutsche Börse AG, Mergenthalerallee 61, 65760, Eschborn, Germany

    Miroslav Budimir

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  1. Miroslav Budimir
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Correspondence to Miroslav Budimir .

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Editors and Affiliations

  1. Faculty of Economics and Business Administration, University of Basel, Basel, Switzerland

    Reto Francioni

  2. Zicklin School of Business Baruch College/CUNY, New York, New York, USA

    Robert A. Schwartz

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Budimir, M. (2017). Implementing MiFID2: The View of a Cash Equities Trading Venue. In: Francioni, R., Schwartz, R. (eds) Equity Markets in Transition. Springer, Cham. https://doi.org/10.1007/978-3-319-45848-9_25

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