IDEAS home Printed from https://ideas.repec.org/a/aza/jsoc00/y2023v15i4p291-303.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: https://hstalks.com/article/8062/download/
    Download Restriction: Requires a paid subscription for full access.
    File URL: https://hstalks.com/article/8062/
    Download Restriction: Requires a paid subscription for full access.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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).
    2. Foley, Sean & Putniņš, Tālis J., 2016. "Should we be afraid of the dark? Dark trading and market quality," Journal of Financial Economics, Elsevier, vol. 122(3), pages 456-481.
    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. 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.
    7. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ibikunle, Gbenga & Rzayev, Khaladdin, 2023. "Volatility and dark trading: Evidence from the Covid-19 pandemic," The British Accounting Review, Elsevier, vol. 55(4).
    2. Zhang, Zeyu & Ibikunle, Gbenga, 2023. "The market quality effects of sub-second frequent batch auctions: Evidence from dark trading restrictions," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. 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).
    4. Bayona, Anna & Dumitrescu, Ariadna & Manzano, Carolina, 2023. "Information and optimal trading strategies with dark pools," Economic Modelling, Elsevier, vol. 126(C).
    5. Ye, Linlin, 2024. "Understanding the impacts of dark pools on price discovery," Journal of Financial Markets, Elsevier, vol. 68(C).
    6. Justin Cox, 2020. "Market fragmentation and post-earnings announcement drift," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 44(3), pages 587-610, July.
    7. Justin Cox & Kathleen P. Fuller & Robert Van Ness, 2024. "Where does ex‐dividend trading occur: An examination of trading venues around dividends," The Financial Review, Eastern Finance Association, vol. 59(1), pages 31-55, February.
    8. Halim, Edward & Riyanto, Yohanes E. & Roy, Nilanjan & Wang, Yan, 2022. "The Bright Side of Dark Markets: Experiments," MPRA Paper 111803, University Library of Munich, Germany.
    9. Jacob Thomas & Frank Zhang & Wei Zhu, 2021. "Dark Trading and Post-Earnings-Announcement Drift," Management Science, INFORMS, vol. 67(12), pages 7785-7811, December.
    10. Egginton, Jared F. & McBrayer, Garrett A. & Watson, Ethan D., 2023. "Shades of trade: Dark trading and price efficiency," Journal of Banking & Finance, Elsevier, vol. 155(C).
    11. 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.
    12. Anagnostidis, Panagiotis & Papachristou, George & Varsakelis, Christos, 2019. "Market quality and dark trading in the post MiFID II era: What have we learned so far?," Economics Letters, Elsevier, vol. 184(C).
    13. Buti, Sabrina & Rindi, Barbara & Werner, Ingrid M., 2010. "Diving into Dark Pools," Working Paper Series 2010-10, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    14. Samuel Antill & Darrell Duffie, 2021. "Augmenting Markets with Mechanisms [Optimal Execution of Portfolio Transactions]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(4), pages 1665-1719.
    15. Lee, Albert J. & Chung, Kee H., 2022. "Hidden liquidity, market quality, and order submission strategies," Journal of Financial Markets, Elsevier, vol. 61(C).
    16. Samuel Antill & Darrell Duffie, 2021. "Augmenting Markets with Mechanisms [Optimal Execution of Portfolio Transactions]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(4), pages 1665-1719.
    17. Duong, Huu Nhan & Kalev, Petko S. & Tian, Xiao Jason, 2022. "Does the bid–ask spread affect trading in exchange operated dark pools? Evidence from a natural experiment," Journal of Economic Dynamics and Control, Elsevier, vol. 139(C).
    18. 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.
    19. Menkveld, Albert J. & Yueshen, Bart Zhou & Zhu, Haoxiang, 2017. "Shades of darkness: A pecking order of trading venues," Journal of Financial Economics, Elsevier, vol. 124(3), pages 503-534.
    20. Hendershott, Terrence & Wee, Marvin & Wen, Yuanji, 2022. "Transparency in fragmented markets: Experimental evidence," Journal of Financial Markets, Elsevier, vol. 59(PA).

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aza:jsoc00:y:2023:v:15:i:4:p:291-303. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Henry Stewart Talks (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.