The Swedish presidency of the Council of the European Union (Council) reached a last-minute agreement with the EU Parliament on proposed changes to the Markets in Financial Instruments Regulation / Directive (MiFIR/MiFID II).
On the last day possible before Spain takes the presidency, the Council announced confirmation of a provisional agreement that will, in theory, see the amendments finally ratified. Covering many aspects of MiFID II, it was notable that the announcement from the Council focused heavily on the market data transparency element of the deal, emphasising that the changes would increase the global competitiveness of the EU’s capital markets.
Neil Ryan, lead at the consolidated tape project run by Bloomberg, MarketAxess and Tradeweb consortium, said, “We welcome the provisional agreement on the MiFIR and MiFID II revisions as a significantly positive step in the consolidated tape journey, and look forward to seeing the details of this agreement in due course. Delivering a fixed income consolidated tape provider (CTP) will help transform the EU capital markets landscape and deliver the broader capital markets union (CMU) agenda. Our consortium is committed to delivering an open, transparent and cost-effective solution, and will be engaging with all stakeholders over the next few months as the technical details of the agreement are being finalised.”
Elisabeth Svantesson, Swedish minister for finance, said in a statement, “I am glad we have found a political agreement on this review that will bring more transparency and make market data more available. A more transparent and accessible financial market will improve the level-playing field between investors and strengthen the EU’s competitiveness at international level, to the benefit of businesses and citizens.” The revision announced on 29 June 2023 agreed to establish EU-level consolidated tapes, with market data from all trading platforms to be included.
It also imposed a general ban on payment for order flow (PFOF), and amended proposals on commodity derivatives. “Detail is still lacking on this provisional deal and I believe there are still more technical discussions to be had,” said James Baugh, head of European market structure at TD Cowen. “I do think last week’s last ditch compromise proposal from the Swedish Presidency is probably where we’ve landed here, assuming this was pre-brokered ahead of yesterday’s Trialogue meeting and subsequently ratified.”
Assuming that the final agreement, the text of which has not yet been released, is based on that final proposal, there are concerns from some corners of the market that the terms have been ‘watered down’ somewhat to meet the demands of powerful players. For example, last week’s proposal supports anonymised consolidated European best bid and offer information on a continuous basis, rather than the previously proposed pre-trade “snapshots”, meaning that pre-trade data will not include any information on which trading venue provides the volumes. “Interestingly, only regulated markets, multilateral trading facilities (MTFs) and authorised publication arrangements (APAs) will contribute under this proposal, so no Systematic Internaliser (SI)quotes,” added Baugh. “I’m not sure how this will go down with either the SIs or the venues.
Intuitively the SIs would probably be relieved but the venues maybe less so. Until we have full clarity on what underlying data is actually included it’s difficult to judge how useful this first CT will be.” The Compromise Proposal also reinforces prioritising support for the venue of listing when it comes to revenue share. “That’s obviously going to be frustrating for the alternative venues, especially because on an intraday basis they might be more influential in setting best prices and have more market share in a particular name,” added Baugh.
A Euronext spokesperson said, “We welcome the outcome of the trade negotiations. It’s an important step for the Capital Markets Union in Europe, and we especially welcome the full ban on Payment for Order Flow. That’s a big step, it ensures retail investors get protection and it prevents conflicts of interest. With regards to the consolidated tape, we welcome the decision to create consolidated data, including anonymised, real-time, pre-trade top of the book data, because this will provide all European market participants with enhanced information supporting all non-trading use cases, including best execution analytics and portfolio valuation.
This offers a viable solution both for the consolidated tape provider and for individual market participants, that currently does not exist.” Others see the move as a win for transparency and technological progress. “I see this as a clear push from the regulators towards more access and more transparency within the EU,” said Matt Barrett, CEO of Adaptive Financial Consulting. “This aligns neatly with the move to public cloud for the venues themselves. A venue hosted within the public cloud will have far greater ease of access for market participants than the current situation. Of the big exchanges to have made public statements about their intent, the CME is clear: they are moving to the cloud to make their venues more accessible.
Accessibility and visibility go hand in hand. All of this paints a disruptive picture for incumbents.” But there are still substantial grey areas around how a consolidated tape might actually function. “There is a working assumption there is no mandatory consumption of the CT but I’ve not seen any details clarifying this,” said Baugh.
“Regardless, mandatory consumption would be very difficult to enforce so I can’t see this would have legs.” The latest agreement is a welcome step forward, given the time it has taken to get here. “This has been many many years in the making, so the Swedish Presidency should be congratulated for getting something over the line before it hands over to the Spanish next week,” agreed Baugh. But there are still strong reservations from many quarters. “The details are still to be announced. I wouldn’t be booking the open-top bus parade just yet,” said one buy-side trader, speaking to BEST EXECUTION under condition of anonymity. A further technical debate is believed to be taking place today (30 June), so more clarity may be issued next week.
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