Unravelling Ariadne’s MiFID II Thread: Pre- and post-trade transparency for non-equity markets

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Pre- and post-trade transparency requirements under MiFID II are expected to cause a big bang effect in non-equity markets, especially for bonds and derivatives markets. As underlined in the discussions among the participants at a half-day conference organised by ECMI on April 6th, much more remains to be done between now and January 2018.

While a higher level of transparency is of great importance, its effect on liquidity is expected to be negative for a number of reasons. The lack of clarity surrounding the Systematic Internaliser (SI) regime – the process followed by firms that aspire to become an SI – and the liquidity thresholds pose many questions that need to be urgently addressed. The trading obligation requirements, according to which only the most standardised liquid derivatives will be traded on a trading venue, is of primary significance. It is essential for ESMA (European Securities and Markets Authority) to get these requirements right in order to avoid misinterpretations. Moreover, greater attention and precision should be given to best execution, particularly to the questions of when and under whose rules – EU rules, venues rules or overseas rules – execution occurs.

Although time is running out, solutions can be found, which hopefully will not be too detrimental to the market. The phase-in approach will certainly help and allow regulators to carefully monitor the implementation of the new requirements and make adjustments or improvements where necessary.