European regulators have acknowledged the likelihood of further intervention to complete the transformation of Europe’s equity markets initiated by launch of MiFID in November 2007.
Jean-Paul Servais, chair of the Committee of European Securities Regulators’ (CESR) MiFID Level 3 Expert Group, said it was already possible to “identify trends in the market and areas where further work may be required”, in a statement accompanying CESR’s assessment of MiFID’s impact of the functioning of equity secondary markets.
“Despite the difficult market conditions of the past 19 months, MiFID has created a new dynamism and increased competition into equity secondary markets. The changes will certainly continue, and CESR stands ready to further analyse these changes and find solutions to any challenges arising,” added Servais.
The report focuses on MiFID’s impact on the transparency and integrity of European equity trading across regulated markets, multilateral trading facilities (MTF) and systematic internalisers. CESR’s assessment follows a call for evidence to stakeholders made in November. Submissions from brokers, asset managers, industry bodies, technology vendors and trading venues were published on CESR’s website in January. A number of submissions called for further regulatory intervention to create a single consolidated source of pre- and post-trade market data to reduce the costs of operating in an increasingly fragmented European equity trading environment. In today’s statement, CESR said it was aware of concerns about market data fragmentation and would conduct further work “to better understand and assess issues surrounding the calibration of the deferred publication regime, the cost of accessing post-trade data and the consolidation of data”.
CESR is one of three supervisory bodies established by the European Commission (EC) to oversee consistent implementation of financial regulation within the European Union. Last month, the EC announced plans to turn CESR and its counterparts in insurance and banking into European Supervisory Authorities with greater powers to intervene in cross-border regulatory issues.
CESR’s new assessment said that MiFID had “significantly changed” through the introduction of new MTF platforms in competition with regulated exchanges, but it acknowledged that the directive’s impact on trading costs was mixed. Although competition between trading venues had exerted downward pressure on direct execution costs, benefits had been offset by the increased technology spend required to trade in the newly fragmented European trading environment and a widening of bid-offer spreads result from volatile market conditions. CESR also noted market participants’ concerns that fee reductions by trading platforms “have not been passed on entirely” by trading participants to investors.
In addition to the assessment, CESR is preparing a similar report on MiFID’s impact on non-equity markets, which is expected to be finalised during the first quarter of 2010.