Many market participants appreciate the far-reaching ambition of MiFID II. However, as the old adage goes, the devil is in the detail, and what looks good on paper may prove counterproductive in practice. There was always the question of the breadth of MiFID II, particularly in relation to Dodd Frank and the G20 Pittsburgh Summit objectives, said Nicholas Bean, global head of electronic trading solutions at Bloomberg. Personally, I supported the breadth on an asset class basis [since] the consistency of regulatory attention across assets is healthy. In that respect, MiFID II did the right thing. However, I do suspect that the ambition got the better of us, particularly in regard to the depth of MiFID II.
For Bean, a classic case of over-reaching ambition is fixed income transparency, where consistency around waivers and deferrals caused divergence as decision making was delegated to national supervisors. For Bean, the MiFID II/MiFIR review is an excellent opportunity for supervisory convergence.
Meanwhile, Udo Franke, head of the stock markets and securities division at the German Federal Ministry of Finance, stressed lingering competitivity issues caused by MiFID IIs impact on market structure. There are trade execution venues, including systemic internalisers, which seem to lack a level playing field, Franke said. We think reforms should address this issue by, for example, reviewing the tick size regime and double volume caps. Tick size regime and double volume caps have long been thorny topics for market participants.
Last year, for example, the European Forum of Securities Associations (ESFA) stated that the application of the tick size regime above Largein-Scale (other than trades executed at mid-point) will not contribute to the price discovery process for LIS trades and may actually inhibit appropriate price formation between systematic internalisers and their clients. Meanwhile, double volume caps have been criticised for causing liquidity to fragment across diverse venues.
In December 2020, the International Swaps and Derivatives Association (Isda) released a report that also expressed concern about competitivity issues as well as data issues and the equitization of non-equity products under MiFID II/MiFIR.