The European Parliament’s version of MiFID II could ban maker-taker tariffs as well as imposing a widely-expected crackdown on high-frequency trading, according documents seen by theTRADEnews.com.
A version of the directive and its attendant regulation proposed by rapporteur Markus Ferber MEP to the Parliament’s Economic and Monetary Affairs Committee (ECON) will be voted on by the committee this Wednesday. It will then be voted on by all MEPs next month.
The document seen seeks to outlaw the use of rebate pricing structures, stating, “an investment firm shall not receive any remuneration, discount or non-monetary benefit for routing orders to a particular trading venue or execution venue”.
Maker-taker pricing rewards those who post liquidity on markets and charges market participants that lift liquidity. It has been favoured by multilateral trading facilities (MTFs) as part of their efforts to gain market share from incumbent exchanges. The tariff has recently been criticised by US senator Charles Schumer, who argued that rebates create a conflict of interest for brokers when deciding where to route orders.
The proposed ECON text also includes a number of measures likely to make Europe a less attractive trading environment for high-frequency traders and electronic market makers. MEPs have amended MiFID to ban sponsored access and naked sponsored access, i.e. the ability for non-exchange members to access markets directly using a member’s ID and infrastructure. The draft also imposes a 500 millisecond resting period for all orders before they can be cancelled or modified.
In an earlier MiFID II draft, Ferber, who is responsible for steering the directive through ECON, had proposed banning “direct electronic access” to markets, which many believe would have also banned direct market access used by brokers to facilitate institutional order flow.
ECON will also vote on a proposal that would compel trading venues to have agreements with market makers, to ensure they “post firm quotes at competitive prices with the result of providing liquidity to the market on a regulator and on-going basis for a minimum proportion of continuous trading hours”. There is also a proposal for trading venues to charge members that place a high proportion of cancelled orders compared to executed orders.
Accelerating the consolidated tape
Ferber’s proposed version of MiFID II will accelerate the creation of a consolidated tape if an adequate commercial solution does not materialise within six months of the directive coming into force.
If a user-friendly, reasonably priced consolidated tape does not emerge in this timeframe – as determined by the European Securities and Markets Authority – the ECON text proposes the Commission “adopt a delegated act…specifying the establishment of a single entity operating a consolidated tape”, within three months.
The initial MiFID II draft put forward by the European Commission last October gave the industry two years to establish a consolidated tape but did not specify precisely how it would respond if an acceptable solution was not forthcoming.
The Council of the European Union, which represents the views of EU member states, suggested earlier this month that ESMA should launch a negotiated procedure for the establishment of a consolidated tape operator if a solution took longer than two years to emerge. The Council, which is reviewing MiFID concurrently with ECON, made the proposal in its most recent draft of the directive.
Differences between the Council and the Parliament will be arbitrated by the Commission.