The European commissioner for internal markets and services, Michel Barnier, has said that the review of MiFID currently being undertaken by the European Commission (EC) will re-examine pre-trade transparency rules for dark pools.
Barnier stressed that the MiFID review had to take account of developments in trading since the directive's introduction in November 2007. “There are new ways of dealing with processing of transactions, as well as the emergence and multiplication of new players including high-frequency traders,” he noted.
The commissioner said that the EC's proposed revisions to MiFID, which will be made public in draft legislation during Q1 2011, would be guided by principles of accountability, transparency, competition and trust.
Considerations of accountability and responsibility would inform the regulators' approach to monitoring excessive risk taking and abusive behaviour, said Barnier, who also stressed that transparency must become the rule for all asset classes. “The existing rules are primarily applied to equity markets, traditional exchanges and multilateral trading facilities (MTFs). We need to impose more transparency on other markets such as bond markets and in particular derivatives markets. And we will look at pre-trade transparency – including for dark pools – as well as review the current post-trade transparency rules to ensure an adequate level of transparency,” he said.
For markets to regain trust, said Barnier, their rules of organisation and conduct must be consistent, with proportionate obligations for market participants that both protect investors and issuers.
The Commissioner's comments are in keeping with the recommendations made by the Committee of European Securities Regulators (CESR) to the EC prior to its review of MiFID. As part of its advice CESR, which is tasked with harmonising regulation across Europe, suggested that broker crossing networks (BCNs) be subject to the same pre-trade transparency requirements as MTFs once they reach a certain level of business. It also recommended that a consolidated tape of post-trade data be mandated if the market failed to produce one.
The buy-side has supported the concept of a consolidated tape but gave a mixed response to measures aimed increasing pre-trade transparency. In its response to a CESR consultation, the European Fund and Asset Management Association asserted that the post”trade transparency of BCNs is “sufficient” and that transparency requirements need not be extended to pre”trade.
In its response, UK industry body the Investment Management Association said it was in favour of a mechanism for identifying dark pool trades, but warned that setting an upper limit on any particular BCN would simply force institutional investors to go to a competitor BCN “rather than becoming subject to pre-trade transparency”.