Date: 11th April 2020
Author: BETTER FINANCE

BETTER FINANCE continues to express deep concern about the unwanted "side-effects" of the MiFID 2 regulatory framework on "lit" equity trading in the EU. Below is the summary response to the ESMA Public Consultation on the review of the MiFID 2 and MiFIR transparency regime for equity and equity-like instruments, the double volume cap mechanism and the trading obligations for shares. The attached document represents the stylised version of BETTER FINANCE's response; the actual reply form submitted to ESMA can be found here.

EXECUTIVE SUMMARY

General comment

BETTER FINANCE welcomes this public consultation from ESMA – even if its language and content is definitely not intelligible to EU citizens as individual investors – as the lack of transparency on the now dominant “dark” venues is generating serious detriment to them and the real economy.

Although the purpose of MiFID II/MiFIR and the new systematic internaliser (SI) regime was to reduce “dark” cross broker networks and bring back more securities trading to “lit”, regulated markets, a legislative loophole in the new regulatory framework has had an adverse effect, with a 16x fold increase in the number of SIs and a 5x times increase in “dark” trading of European equity and equity-like instruments.

This has significantly affected the process of price discovery, poses significant threats to investor protection and creates a serious detriment (and erosion of trust) for individual, non-professional investors’ participation in capital markets. It is also quite inconsistent with the main objectives of the “CMU” (Capital Markets union”) initiative.

Large-in-scale

threshold

For BETTER FINANCE, it seems obvious that the double-volume cap and the SI regime have not achieved their purpose. Therefore, we propose a simplification of the market structure and a delimitation of dark-lit trading (both OTC and SI) based on a higher large-in-scale (LIS) threshold.