MiFID 2 Targets Data, Transparency Issues

A mandatory consolidated tape of pan-European equities trade data is one of the options designed to increase transparency and reduce the costs of market data being considered by the European Commission, which this week began a two-month consultation with market participants in the region over pending reforms to its Markets in Financial Instruments Directive (MiFID) regulation.

At a press conference on Wednesday, Dec.8, Michel Barnier, the EC's internal market and services commissioner, said that industry input will guide the legislative content of the new regulation - dubbed MiFID 2 - which is due to come into force next May.

The EC will consult with the market on three different proposals for introducing and operating a consolidated tape, ranging from a single utility to several providers using harmonized standards.

Other efforts to increase transparency include proposals to introduce a new category of trading venue - "Organized Trading Facilities" - to cover broker crossing networks, drawing a distinction between regulated dark pools, multilateral trading facilities, and other broker-operated trading facilities, as well as proposals to curb any potential risks arising from the use of algorithmic and high-frequency trading, and to increase transparency of trading activity of commodity derivatives on all organized trading venues by introducing obligatory position reporting, broken out by trader type to allow regulators and trading firms to monitor speculative activity.

However, Bob Fuller, director of UK-based low latency data and trading technology vendor Fixnetix, says market participants should be concerned about the consultation paper's ambiguity and lack of detail.

While the changes will certainly heighten transparency and connectivity requirements across all asset classes, "as with any regulation, the devil will be in the detail," Fuller says. "The problem at this stage is that the detail is yet to be defined, and the body specifying most of that detail will be the European Securities and Markets Authority (ESMA) - an organization that doesn't even exist yet, and which is only likely to set the specifications after new regulation has already been passed into law."

The EC aims for ESMA - which will replace the current Committee of European Securities Regulators - to be operational next month, prior to the Feb. 2 deadline for industry participants to respond to the EC's consultation paper.