MiFIR review: The right balance

Trading in shares in the European Union (EU) is fragmented across a large number of execution venues applying varying degrees of transparency. The review of the Markets in Financial Instruments Regulation (MiFIR) aims at creating the right conditions for the establishment of an entity, the consolidated tape provider, that provides a consolidated picture of core trading data to the market. Co-legislators principally disagreed on whether or not such a consolidated picture should include close to real-time data on prices and volumes on all pre-trade transparent trading venues (pre-trade data). Authors argue that important use-cases require the inclusion of pre-trade data and that the provisional political agreement reached on 29th June rightly recognises this. The review of MiFIR also includes amendments to the conditions under which individual execution venues are required to publish such pre-trade data. While there are good reasons for allowing ‘dark trading’, too much dark trading could harm the quality of price formation for shares. There is no strong evidence that the ‘volume cap’ which caps certain variants of dark trading has positive effects. The authors argue in this paper that a holistic and data-based approach to capping dark trading can contribute to the quality of price formation for shares. The consolidated tape will provide relevant data for such an approach.