Position on Equity Market Structure & Data

Key issue & request:

• Fair Competition & Market Structure: MiFID II has permitted the growth of non-transparent venue trading. To the detriment of individual investors, it has unintendedly facilitated a proliferation of Systematic Internalisers (SIs) with reduced transparency obligations. Securing the right market structure for European public capital markets which protects price formation will better serve companies and investors. A well-functioning price formation process is key to the stability and resilience of public capital markets and has a positive impact on the cost of capital for the broader economy.
• Guaranteeing a transparent, high quality, reliable and consistent view of 100% of the market activity, including SI and OTC trades, is key to the functioning of European capital markets and for any consolidated tape (CT) to be considered meaningful. In this respect, a broader implementation of the Market Model Typology (MMT), which currently ensures consistency of exchange data, would contribute to addressing existing SI and OTC data quality issues.
• End investors need to be empowered by ensuring execution quality across all trading opportunities.

How to resolve this?

• It is crucial that the design of the equity market structure takes priority and is simplified. Restricting SI equity trading to large orders (above LIS) only would be an efficient way to incentivise lit trading, ensure the quality and robustness of price formation and removes the complexity currently embedded within the market.
• A pre-condition for a reliable CT is an improvement of SI and OTC data quality, and a coverage of 100% of the transactions.  The creation of a “Tape of Record” could represent a cost-effective solution to a CT, avoid latency issues and deliver clear value to the market and investors. Notably, a means to analyse execution quality.

The justification for legislative change:

•  MiFID II is core to the organisation of pan-European securities markets and issues within it underpin the current weaknesses in European public capital markets. These should be addressed in a holistic manner.

We respectfully urge the European Commission to ensure the EU is equipped with a comprehensive vision to strengthen EU public capital markets, both within the Union and on a global basis, and work with the industry to ensure that these markets play a full role in the economic recovery from the Covid-19 crisis as well as accompanying digital and sustainability transformations. We stand ready as European exchanges to participate in this process.