Industry groups welcome European Parliament’s draft report on MiFIR although some believe further changes are required.
The draft sets out plans to ban payment for order flow (PFOF) in Europe, remove dark pool caps and support a pre-trade consolidated tape.
Preventing PFOF or brokers from selling customers’ share trades to market intermediaries reflects growing issues in the market over the practice.
Danuta Hübner, a senior lawmaker and Polish MEP, said that concerns over payment for order flow are “symptomatic of a broader issue” of national EU regulators interpreting rules differently.
As for scrapping the amount of business that can be executed in dark pools, Hübner’s said the caps, brought into force with the 2018 MiFID II rules, were “set arbitrarily and had limited utility”.
It would also bring it into line with the UK, which had committed to ending the policy.
On the consolidated tape, the draft recommends an amendment to require both pre- and post-trade data reporting for equities, as well as post-trade data for all other asset classes.
“The draft MiFIR report is a positive step for markets.” said Jillien Flores, executive vice president and managing director, head of global government affairs at the Managed Funds Association. “The rising price of market data harms efforts to strengthen the capital markets union and the report’s recommendations will provide ESMA the tools to ensure data is provided on a fair, commercial basis.”
She added, “All market participants should be able to secure market data at a reasonable fee that reflects the cost to produce and disseminate the data.”
Adam Farkas, chief executive at Association for Financial Markets in Europe (AFME), said, “The MiFIR review and the proposals from Professor Hübner come at a critical moment. With Europe facing challenging times in light of slowing growth and rising inflation, in addition to the economic impact of the war in Ukraine, the efficient functioning of secondary markets is even more vital to meet Europe’s increasing private financing needs.”
He added, “To ensure the continued functioning of these markets, the MiFIR Review must preserve the diversity of trading mechanisms serving different investor needs.
“Therefore, we would urge the Parliament to consider key issues affecting the competitiveness of European markets. For example, proposals which impose undue restrictions or expose committed bank liquidity providers to increased risk could have potentially damaging effects on secondary market liquidity and the competitiveness of European markets.”
AFME specifically points to the proposals for an enhanced role for ESMA in establishing a size threshold for Systematic Internaliser (SI) trades that can be executed at midpoint, a minimum quoting size for SIs and a minimum size threshold for use of the reference price waiver by trading venues.
AFME cautions that if these restrictions are introduced, it is vital that they are based on sound evidence relating to market quality (i.e. the efficiency of intraday and closing price formation) and the delivery of best execution outcomes for end investors.
AFME believes that applying further, unnecessary restrictions to the SI regime will erode the level playing field and inhibit SIs’ efficient facilitation of trading for institutional investors. For example, we note that the EU is a global outlier in pursuing restrictions on midpoint execution.
