EU capital markets at a crossroads: Getting the MiFID II/MiFIR review right to unlock Europe’s growth potential

This paper explores the aims and scope of the MiFID II/MiFIR Review and its significance in unlocking Europe’s growth potential amid current socioeconomic challenges. The EU’s capital markets currently underperform globally, necessitating urgent structural reforms to enhance competitiveness and participation. The Markets in Financial Instruments Directive II (MiFID II)/ Markets in Financial Instruments Regulation (MiFIR) regime, designed to foster fair competition and investor confidence, has fallen short due to market fragmentation and regulatory inconsistencies. Addressing these issues requires transparent, resilient and integrated capital markets that prioritise liquidity, price formation and investor protection. Fragmentation in the EU equity market is a pressing concern, with off-book volumes increasing and exchanges experiencing a decline in trading flow. Enhancing transparency requirements, minimum order sizes and the dark trading cap, while simplifying waivers and deferrals, can help address these challenges. Implementing a consolidated tape (CT) to increase transparency in off-exchange trading is also crucial, with a phased-in approach recommended for reliable and high-quality data. Placing societal interests at the heart of these reforms is vital for achieving the EU’s strategic autonomy and ensuring long-term economic growth. The MiFID II/MiFIR Review presents an opportunity to promote transparency, efficiency and investor protection, garnering citizen support and contributing to critical societal challenges. Readers can expect to gain knowledge of the current state of EU capital markets, the shortcomings of the MiFID II/MiFIR regime and the necessary reforms to unlock Europe’s growth potential. They will understand the challenges posed by market fragmentation, the importance of transparency and liquidity and the role of a CT in enhancing the investment climate.