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MiFIR review: The right balance

Author

Listed:
  • Bassi, Ugo

    (Directorate General for Financial Stability, Belgium)

  • Rookhuijzen, Martijn

    (Seconded National Expert, European Commission, Belgium)

Abstract

Trading in shares in the European Union (EU) is fragmented across a large number of execution venues applying varying degrees of transparency. The review of the Markets in Financial Instruments Regulation (MiFIR) aims at creating the right conditions for the establishment of an entity, the consolidated tape provider, that provides a consolidated picture of core trading data to the market. Co-legislators principally disagreed on whether or not such a consolidated picture should include close to real-time data on prices and volumes on all pre-trade transparent trading venues (pre-trade data). Authors argue that important use-cases require the inclusion of pre-trade data and that the provisional political agreement reached on 29th June rightly recognises this. The review of MiFIR also includes amendments to the conditions under which individual execution venues are required to publish such pre-trade data. While there are good reasons for allowing ‘dark trading’, too much dark trading could harm the quality of price formation for shares. There is no strong evidence that the ‘volume cap’ which caps certain variants of dark trading has positive effects. The authors argue in this paper that a holistic and data-based approach to capping dark trading can contribute to the quality of price formation for shares. The consolidated tape will provide relevant data for such an approach.

Suggested Citation

  • Bassi, Ugo & Rookhuijzen, Martijn, 2023. "MiFIR review: The right balance," Journal of Securities Operations & Custody, Henry Stewart Publications, vol. 15(4), pages 291-303, September.
    • Handle: RePEc:aza:jsoc00:y:2023:v:15:i:4:p:291-303
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    References listed on IDEAS

    as
    1. Johann, Thomas & Putnins, Talis & Sagade, Satchit & Westheide, Christian, 2019. "Quasi-dark trading: The effects of banning dark pools in a world of many alternatives," SAFE Working Paper Series 253, Leibniz Institute for Financial Research SAFE.
    2. Hatheway, Frank & Kwan, Amy & Zheng, Hui, 2017. "An Empirical Analysis of Market Segmentation on U.S. Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2399-2427, December.
    3. Haoxiang Zhu, 2014. "Do Dark Pools Harm Price Discovery?," The Review of Financial Studies, Society for Financial Studies, vol. 27(3), pages 747-789.
    4. Comerton-Forde, Carole & Putniņš, Tālis J., 2015. "Dark trading and price discovery," Journal of Financial Economics, Elsevier, vol. 118(1), pages 70-92.
    5. Ibikunle, Gbenga & Aquilina, Matteo & Diaz-Rainey, Ivan & Sun, Yuxin, 2021. "City goes dark: Dark trading and adverse selection in aggregate markets," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 1-22.
    6. Ibikunle, Gbenga & Li, Youwei & Mare, Davide & Sun, Yuxin, 2021. "Dark matters: The effects of dark trading restrictions on liquidity and informational efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    MiFIR; double volume cap; market structure; capital markets; consolidated tape;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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