Policymakers have admitted that MiFID II has failed to improve continuous lit activity in secondary markets in the European region, according to the latest Liquidnet Liquidity landscape report.
This could impact policy objective of increasing primary listings, and potentially restrict European Capital Markets growth and ability to support the transition to a sustainable economy.
The report asks, “With European equities market reaching a €53.4B average daily value in 2022 – a 8.2% increase over 2021 – the question for regulators is where and what volume traded.”
It believes that the focus for both UK and European regulators should be based on a need to enhance data transparency and the harmonisation of reporting to bolster confidence in markets.
The requirement for mandated data provision in pre-determined formats is likely to lead to greater penalties for non-conformance.
It said, “there is a renewed fixation particularly with dark trading and a view that the reason for its persistent existence is the regulatory inability to address dark trading due to the complexity of the double volume cap (DVC).”
One of the problems in resolving any issue is albeit firmly on the agenda, the MiFID/MiFIR review, “is a long way from being completed” as not all member states are on board which could lead to certain provisions in the regulation being postponed, said the report.
In fact, it pointed out increasingly regulatory detail is being pushed to the European Securities Market Authority (ESMA) for future deliberations.
One example is the ban on payment for order flow (PFOF) and the deferral regime for non-equities, where the new regime is dependent on a delegated act with Regulatory Technical Standards from ESMA.
This means that the current deferral regime will continue to apply until relevant RTS are adopted and a new deferral regime can be implemented. It applies also to the ban on the client order routing practice with a possibility for member states to assess “discretionary” use, the report added.
In addition, it added, “current regulatory proposals fail to address wider concerns. The underlying focus is shifting from the sell-side post GFC 2008 to the inherent liquidity risks within asset management.”
©Markets Media Europe 2023
