State of Play: Post-MiFID and Pre-Brexit
What we learnt from FIX EMEA 2019
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One year on from the start of MiFID II and ahead of a possible no-deal Brexit, the key issue for industry participants and regulators alike remains ensuring access to accurate data to establish where and how to trade. The level of uncertainty as to the final outcome of Brexit reinforces these challenges with the potential introduction of a parallel version of MiFID II Share Trading Obligation (STO) in the UK as well as the EU, and the resulting risk of duplicate reporting in the event of a no-deal Brexit. Currently there is no planned equivalence for UK venues which will have implications on where European shares – and potentially UK shares – will be eligible for trading in the future. Recent guidance from ESMA states that the EU STO should apply to all shares traded on EU27 venues under EU ISINs, meaning all UK venues including Systematic Internalisers, would no longer be eligible for trading by European investment firms. ESMA plans to extend this obligation to UK ISIN listed shares deemed “liquid” in the EU272.
Liquidity formation is likely to be altered further with the introduction of regulatory changes to periodic auctions to address ESMA’s concerns around the perceived lack of pre-trade transparency and price discovery. Although the volume of periodics remains around 2% of market share , regulators question whether the construct is used to circumvent the DVC suspensions. Future regulatory focus on auctions would likely be on ensuring consistency between trading protocols, rather than an outright ban.
The need for accurate and complete data will only increase as the level of complexity in how liquidity is formed continues to evolve. The question for the industry is how technology and greater standardisation in the publication of data can improve the visibility of the market for participants and regulators.
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By Rebecca Healey, Head of Market Structure & Strategy, EMEA