The European Commission should abolish the distinction between primary exchanges and multilateral trading facilities (MTFs) and introduce a new two-tier system for listing and non-listing venues, according to a panel of senior securities industry personalities.
Speaking at an event in London organised by FIX Protocol Limited, Guy Sears, director, wholesale at UK buy-side trade body the Investment Management Association, questioned the need for a difference between regulated markets and MTFs, arguing that the concept of a primary exchange as a national asset is now outdated.
“Some people have an idealised view of an exchange as a national asset, but they’re really not – they’re just the same as any other trading venue,” he said. “I really don’t see the need for a regulatory difference. Why not just have a single regime divided between venues that list and venues that don’t?”
Sears suggested that such a system would create a simplified regime where trading venues simply register to provide listing services if they so wish – ending the last vestiges of the monopoly-based exchange system that existed in Europe prior to MiFID's introduction in 2007. Under the current version of MiFID, MTFs cannot compete with primary exchanges in the listings business – nor are they allowed to run opening and closing auctions.
Alasdair Haynes, former CEO of MTF Chi-X Europe, expressed strong support for the concept of a single regulatory regime for MTFs and regulated markets.
“We have always said that this situation is contrary to the principles of open and fair competition,” he said. “If we want to create a level playing field, it seems inconsistent that there are some areas where MTFs are not allowed to compete.”
The session ended with other participants, including Richard Balarkas, president and CEO at agency broker Instinet Europe, criticising the European Commission for its efforts to micromanage financial markets – and its support for lit, primary exchanges.
“There is nothing wrong with trading on MTFs, in broker crossing networks or OTC,” he said. “The whole regulatory approach in Europe is flawed. While transparency is welcome, some of the regulation forced on the market betrays a lack of understanding of the needs of different market participants.”
Following a market-wide consultation by MiFID rapporteur Markus Ferber MEP, draft amendments to MiFID II are expected to be submitted to the European Parliament in the next few weeks. The Parliament will then meet at the end of April to discuss the amendments. The current draft of MiFID II that was released by the European Commission in October proposes the creation of the organised trading facility (OTF), a new pervasive venue category that would capture broker crossing networks and new trading venues that emerge as a result of new OTC derivatives legislation. But Ferber has indicated that he is likely to table an amendment that would limit the OTF to non-equity instruments only.