European capital markets require threefold policy action based on building a true EU single market for financial instruments, improved data quality and transparency in European bonds, equities and derivatives markets, and strengthened investor protection standards, according to the Futures Industry Association European Principal Traders Association (FIA EPTA).
Commenting on the recent publication of the European Commission’s review proposals on Markets in Financial Instruments (MiFIR) and the Second Markets in Financial Instruments (MiFID II), FIA EPTA “very much applauds” the commission’s proposals, arguing these three areas will ensure that European capital markets make a greater contribution to the EU economy and the wider wellbeing of its citizens post-Brexit.
Regarding the design and execution of a Consolidated Tape (CT) for equities, bonds and derivatives, FIA EPTA says it will “strongly support” its creation across the three asset classes as this will help to democratise European capital markets.
In addition, FIA EPTA says the CTs will allow end investors to exercise greater control over the various available execution options, which will benefit all market participants, not just the buy-side, in ensuring integration, efficiency and transparency.
FIA EPTA adds that it advocates for an all-encompassing derivatives CT, rather than the current proposed scope which is narrow, to match equally comprehensive equities and bonds tapes.
In terms of the commission’s bond market proposals, FIA EPTA argues that this complements the creation of CTs, as current MiFIR post-trade transparency information in bonds poses no practical value with weeks-long deferrals.
Therefore, FIA EPTA says it “welcomes the commission’s proposal to harmonise the deferral regime to ensure a level playing field, while at the same time shortening the publication delays for post-trade transparency information”.
Finally, although FIA EPTA welcomes the commission’s intention to prohibit payment for order flow (PFOF) practices in the EU, the association expresses concern that the current draft of the proposal may be ineffective as it vaguely defines what is considered PFOF, how it is practiced, and between whom.
The association adds that a 15-minute deferral would be an appropriate recommended length based on market experience, as the current proposal is at risk of creating a “highly complex and conservative” regime that could see significant variance in deferrals.
Piebe Teeboom, secretary general of FIA EPTA, comments: “We welcome the direction of travel of the proposals, while still seeing definite room for further improvements. We look forward to working closely with other market participants and with public authorities to realise an updated EU markets rulebook that does justice to these imperatives.”
