EU Equity pre- and post-trade transparency regulation: from ISD to MiFID II

Preface VII
Abbreviations XLI

Chapter 1 Introduction 1
I. Research topic 1
II. Research question and objective 4
III. Research method and demarcation 4
IV. Terms and defi nitions 7
1. Investment fi rm 7
2. Financial instruments 9
2.1 Shares 10
2.2 Depositary receipts 10
2.3 ETFs 11
2.4 Certifi cates 12
2.5 Other similar fi nancial instruments 14
3. RM and MTF 15
4. (Systematic) internalisation 18
5. Agency crossing 19
6. Financial market data 20
7. Liquidity 21
8. Price discovery 24
9. Best execution 26
V. Research outline 28

Part I: Equity pre-trade transparency 31

Chapter 2 Conceptual framework of equity pre-trade transparency 33
I. Introduction 33
II. Defi nition of equity pre-trade transparency 33
III. Types of pre-trade data 35
1. Coverage 36
2. Speed 36
3. Depth 37
4. Identity disclosure versus anonymity 39
IV. Different pre-trade data needs 39
V. Dark liquidity and dark pools 40
VI. What is the optimal degree of equity pre-trade transparency? 42
VII. Bottom-up versus top-down 43
VIII. Conclusion 44

Chapter 3 Equity pre-trade transparency under the ISD 47
I. Introduction 47
II. RMs 48
1. A single and modest ISD equity pre-trade transparency obligation 48
2. FESCO guidance on equity pre-trade transparency obligations 50
3. National equity pre-trade transparency obligations 51
4. Exceptions to the ISD, FESCO, and national equity pre-trade transparency obligations 52
5. Background 54
5.1 Different market structures 54
5.2 Minimum harmonisation 57
5.3 Limited implementing powers for EU institutions 58
III. Investment fi rms 59
1. A national equity pre-trade transparency approach 59
2. ATSs and order internalising systems 59
2.1 FESCO standards for ATSs and order internalising systems 60
2.2 CESR standards for ATSs 61
3. The dominant role of RMs in publishing equity pre-trade data 62
3.1 Factor 1: optional ISD concentration-rule 62
3.2 Factor 2: national regulation 62
3.3 Factor 3: modernization of EU RMs 63
4. Background 63
IV. Conclusion about the ISD 64

Chapter 4 Equity pre-trade transparency under MiFID I 67
I. Introduction 67
II. RMs and MTFs 69
1. Equity pre-trade transparency obligations 70
1.1 Goal 70
1.2 Scope 70
1.2.1 Venues 70
1.2.2 Financial instruments 71
1.2.3 Traded in the system 71
1.3 Types of equity pre-trade data: price, depth, and speed 71
1.3.1 General 71
1.3.2 Calibration to the trading system 72
1.3.3 Timing of the publication (speed) 74
1.4 Might RMs and MTFs publish pre-trade data beyond MiFID I? 75
1.5 Background 76
1.5.1 Goals 76
1.5.2 Limitation to shares admitted to trading on an RM 78
1.5.3 Introduction of the MTF 79
1.5.4 Calibration to the trading system 80
1.5.5 Minimum set of equity pre-trade data to publish 81
1.5.6 Timing of equity pre-trade data publication 82
1.5.7 Increase in harmonisation 82
2. Equity pre-trade transparency waivers (dark pools) 84
2.1 Waiver for a certain system: reference price waiver 85
2.1.1 General 85
2.1.2 Background 86
2.2 Waiver for a certain system: negotiated trade waiver 88
2.2.1 General 88
2.2.2 Background 90
2.3 Waiver for certain types of orders: order management facility waiver 92
2.3.1 General 92
2.3.2 Background 93
2.4 Waiver for a certain type of order: large in scale waiver 95
2.4.1 General 95
2.4.2 Definition of large in scale-orders 95
2.4.3 Background 96
2.4.3.1 Level 1 text: goals of the waiver 96
2.4.3.2 Level 2 text: defi ning large in scale orders 97
3. Waiver process 98
3.1 General 98
3.2 Background 99
4. Concluding remarks 100
III. SIs 101
1. Defi nition 102
1.1 General 102
1.2 Background 104
1.2.1 Level 1 text: main aspects of the defi nition 104
1.2.2 Level 2 text: details of the defi nition 106
2. Obligation to publish quotes 109
2.1 General 109
2.2 Liquid market 111
2.3 Standard market size 113
2.3.1 General 113
2.3.2 Scope: obligation to publish a firm quote and OTC transactions 113
2.3.3 Defi ning the standard market size 115
2.4 May SIs publish pre-trade data beyond MiFID I? 116
2.5 Background 116
2.5.1 Level 1 text: debate on the main obligations and thresholds 116
2.5.2 Level 2 text: liquid market 118
2.5.3 Level 2 text: standard market size 120
3. Obligation to execute quotes 122
3.1 General 122
3.2 Background 124
3.2.1 Level 1 text: main obligation and thresholds 124
3.2.2 Level 2 text: determining the size customarily undertaken by a retail investor 125
4. Obligation to give access to quotes 127
4.1 General 127
4.2 Background 129
5. Concluding remarks 130
IV. Investment fi rms and client limit orders 131
1. Disclosure of client limit orders 132
1.1 Obligation to publish client limit orders 132
1.2 Exceptions 133
1.3 Member State option 134
1.4 Background 135
2. Concluding remarks 137
V. Performing calculations and operating databases 138
1. Calculations and estimates 139
1.1 MiFID I text 139
1.2 CESR guidance 141
1.2.1 CESR guidance of 2007 141
1.2.2 CESR guidance of 2010 143
1.3 Background 143
1.3.1 Level 1 text: performing standard market size calculations 143
1.3.2 Level 2 text and the CESR guidance of 2007: performing the calculation of the standard market size 144
1.3.3 CESR guidance of 2007: performing the calculation of the average daily turnover and average daily number of transactions 145
1.3.4 CESR guidance of 2007: performing the calculation of the free fl oat 145
1.3.5 CESR guidance of 2010: improving data collection 146
1.4 Interim conclusion 147
2. Databases and registers 147
2.1 General 147
2.2 MiFID I Database for Shares Admitted to Trading on an RM 148
2.3 MiFID I SI Register 150
2.4 Background 151
2.5 Interim conclusion 153
3. Concluding remarks 153
VI. Conclusion about MiFID I 154

Chapter 5 Equity pre-trade transparency under MiFID II 157
I. Introduction 157
II. RMs and MTFs 159
1. Equity pre-trade transparency obligations 160
1.1 Goal 160
1.2 Scope 160
1.2.1 Financial instruments 160
1.2.2 Actionable indications of interest 161
1.2.3 Traded in the system 161
1.3 Types of equity pre-trade data 162
1.3.1 Calibration to the trading system 162
1.3.2 ESMA opinion on frequent batch auctions 166
1.4 Timing of the publication (speed) 167
1.5 May RMs and MTFs publish pre-trade data beyond MiFID II? 168
1.6 Background 169
1.6.1 Goals 169
1.6.2 Equity-like instruments traded on a trading venue 169
1.6.3 Actionable indications of interest 170
1.6.4 Exclusion of OTFs from the equity pre-trade transparency regime 171
1.6.5 Calibration and the introduction of the request for quote-trading system 173
1.6.6 Minimum set of equity pre-trade data to publish 174
1.6.7 ESMA opinion on frequent batch auctions 174
1.6.8 Timing of equity pre-trade data publication 175
1.6.9 Maximum harmonised obligations 176
2. Equity pre-trade transparency waivers (dark pools) 177
2.1 Waiver for a certain system: reference price waiver 178
2.1.1 General 178
2.1.2 ESMA opinion on frequent batch auctions and the reference price waiver 179
2.1.3 Background 180
2.2 Waiver for a certain system: negotiated trade waiver 182
2.2.1 General 182
2.2.2 Defi nition of a negotiated trade 183
2.2.3 Negotiated trades with and without pricing conditions 183
2.2.4 Liquid market 185
2.2.5 Rule-based provisions 187
2.2.6 Background 187
2.2.6.1 Level 1 text: assessing the MiFID I negotiated trade waiver 187
2.2.6.2 Level 1 text: MiFIR defi nition of a liquid market 189
2.2.6.3 Level 2 text: Member State discretion in assigning liquid equity instruments 190
2.2.6.4 Level 2 text: setting the liquid market thresholds 191
2.2.6.5 Level 2 text: defi nition of a negotiated transaction 193
2.2.6.6 Level 2 text: negotiated transactions not contributing to price formation 194
2.3 Waiver for certain orders: order management facility waiver 194
2.3.1 General 194
2.3.2 Background 196
2.3.2.1 Level 1 text: general aspects 196
2.3.2.2 Level 2 text: type and minimum size of orders 198
2.4 Waiver for a certain order: large in scale waiver 199
2.4.1 General 199
2.4.2 Defi nition of a large in scale order 201
2.4.3 Background 203
2.4.3.1 Level 2 text: calibration of the thresholds 203
2.4.3.2 Level 2 text: clarifi cations on the scope (stubs) 205
2.5 Double volume cap mechanism 207
2.5.1 General 207
2.5.2 Background 209
2.5.2.1 Level 1 and Level 2 text: controversial nature of the negotiated trade and reference price waiver 209
2.5.2.2 Level 1: drafting the MiFID II waivers 210
2.5.2.3 FCA Occasional Paper on Dark Liquidity 211
3. Waiver process 212
3.1 General 212
3.2 Background 214
4. Internal matching systems and the requirement to authorise as an MTF 216
4.1 General 216
4.2 What does an ‘internal matching system’ mean? 216
4.3 What does ‘on a multilateral basis’ mean? 218
4.3.1 Interpretation 1: the case of Robeco versus AFM – excluding price formation from the RM (and MTF)-defi nition 218
4.3.2 Interpretation 2: new provisions under MiFID II – Price formation as an element of the MTF-defi nition 220
4.4 Background 222
5. Concluding remarks 227
III. SIs 228
1. Definition 229
1.1 General 229
1.2 Quantitative criteria 229
1.2.1 Frequent and systematic basis 230
1.2.2 Substantial basis 231
1.2.3 Possibility to opt-in 231
1.3 Rule-based provisions to distinguish SIs from RMs/MTFs 232
1.4 Background 233
1.4.1 Level 1 text: introduction of quantitative elements 233
1.4.2 Level 2 text: frequent and systematic basis 235
1.4.3 Level 2 text: substantial basis 236
1.4.4 Possibility to opt-in 237
1.4.5 Rule-based provisions to distinguish SIs from RMs/MTFs 238
2. Obligation to publish quotes 239
2.1 General 239
2.2 Differences from MiFID I to MiFID II 239
2.3 Liquid market 241
2.3.1 General 241
2.3.2 Scope: obligation to publish a firm quote and OTC transactions 241
2.4 Standard market size 243
2.4.1 General 243
2.4.2 Definition: determining the standard market size 243
2.5 May SIs publish equity pre-trade data beyond MiFID II? 245
2.6 Background to the obligation to publish quotes 245
2.6.1 Level 1 text: aim to publish more meaningful pre-trade data 245
2.6.2 Level 1 and Level 2 text: a new liquid market-defi nition 246
2.6.3 Level 2 text: new details for the standard market size-defi nition 247
2.6.4 Level 1 and Level 2 text: rule-based provisions 249
3. Obligation to execute quotes 250
3.1 General 250
3.2 Background 252
3.2.1 Rule-based provisions 252
3.2.2 Price improvements for all types of clients 253
4. Obligation to give access to quotes 253
4.1 General 253
4.2 Background 255
5. Concluding remarks 256
IV. Investment fi rms and client limit orders in shares 257
1. Disclosure of client limit orders 258
1.1 Obligation to publish client limit orders 258
1.2 Exceptions 259
1.3 Member State option 260
1.4 Background 261
1.4.1 Level 1 text: expansion in scope 261
1.4.2 Level 1 and Level 2 text: change in publication channels 261
1.4.3 Alignment with the RM/MTF large in scale-waiver 262
1.4.4 Level 1 and Level 2 text: Member State option and client consent 263
2. Concluding remarks 264
V. Investment fi rms and the share trading-obligation 264
1. Obligation to undertake share trades on regulated venues 265
1.1 Goal and requirement 265
1.2 Scope 265
1.2.1 Shares 265
1.2.2 Eligible venues 265
1.2.3 MiFID II investment fi rms 266
1.2.4 Admitted to trading on an RM or traded on a trading venue 266
1.2.5 The term ‘undertakes’ 267
1.3 Third country trading venues 268
1.3.1 General 268
1.3.2 ‘Dual listed’ shares 268
1.3.3 Case of Switzerland 269
1.3.4 Case of Brexit 270
1.4 Background to the MiFID II share trading-obligation 271
1.4.1 MiFID I Review 271
1.4.2 Scope of the MiFID II share-trading obligation 272
2. Exceptions to the share trading-obligation 273
2.1 Exception 1: non-systematic, ad-hoc, irregular and infrequent trades 273
2.1.1 MiFID II provision and ESMA views 273
2.1.2 Commission and ESMA guidance 274
2.1.3 Background 275
2.2 Exception 2: share trades between eligible and/or professional counterparties that do not contribute to the price discovery process 276
2.2.1 Non-addressable liquidity trades 276
2.2.2 Trades determined by factors other than the current market valuation 277
2.2.3 Background 278
3. Concluding remarks 279
VI. Performing calculations and operating databases 280
1. Reference data 281
1.1 General 281
1.2 Background 282
2. Calculations and estimates 284
2.1 General 284
2.2 Main calculations and estimates 285
2.2.1 Reporting parties: RMs, MTFs, APAs, and CTPs 285
2.2.2 Content of the data to be reported 286
2.2.3 Frequency of data requests and response times 287
2.2.4 Format of the data 288
2.2.5 Storage of the data 288
2.2.6 Performing the main calculations and estimates 289
2.2.7 Calculating the SI-thresholds 291
2.2.8 Background 292
2.2.8.1 Level 1 and Level 2 text: main reasons why MiFID II is more extensive than MiFID I 292
2.2.8.2 Level 1 and Level 2 text: details of the data collection and storage rules 293
2.2.8.3 Level 2 text: methodology of the calculation and estimation rules 296
2.2.8.4 Delegation to ESMA 298
2.2.8.5 ESMA support in performing SI-assessments 300
2.2.9 Interim conclusion 300
2.3 Calculations for the double volume cap 301
2.3.1 Reporting parties: RMs, MTFs, CTPs, and NCAs 301
2.3.2 Content of the data 302
2.3.3 Frequency of data reporting 303
2.3.4 Formats 303
2.3.5 Performing the calculations 304
2.3.6 Completeness Ratio and Completeness Shortfall 305
2.3.7 Background 306
2.3.7.1 Level 2 text: details of the data collection provisions 306
2.3.7.2 Level 1 and Level 2 text: delegation to ESMA 306
2.3.7.3 Level 1 text: details of the calculation provisions 310
2.3.8 Interim conclusion 311
3. Databases 312
3.1 General 312
3.2 FIRDS 312
3.3 FITRS 314
3.4 DVC Database 315
3.5 SI calculation database 317
3.6 Background 318
3.7 Interim conclusion 318
4. Hard Brexit scenario 319
5. Concluding remarks 321
VII. MiFID II review 321
1. RMs and MTFs 323
1.1 General 323
1.2 Assessment of the MiFID II waivers and double volume cap 324
1.2.1 Reference price waiver and negotiated trade waiver 324
1.2.2 Combination of waivers 326
1.2.3 Large in scale-thresholds for ETFs 327
1.2.4 Double volume cap: thresholds, no extension to illiquid instruments, and sanctions 329
1.2.4.1 Eliminate the four percent-threshold and tighten the EU level threshold (proposal 1) 330
1.2.4.2 Confi ne the double volume cap to liquid instruments (proposal 2) 331
1.2.4.3 Suspensions of waiver use based on montly ESMA calculation results (proposal 3) 332
1.2.4.4 Sanctions for infringements (proposal 4) 332
1.2.5 Interim conclusion 333
1.3 Assessment of frequent batch auctions 334
1.3.1 ESMA key proposals and observations 334
1.3.1.1 Initial position: ESMA opinion of 2019 334
1.3.1.2 ESMA MiFID II Review of 2020 335
1.3.2 Interim conclusion 337
1.4 Assessment of closing auctions 338
1.4.1 ESMA key proposals and observations 338
1.4.2 Interim conclusion 339
2. SIs 340
2.1 General 340
2.2 Assessment of the minimum quoting obligations 340
2.2.1 Liquid market 341
2.2.1.1 Shares 342
2.2.1.2 ETFs and depositary receipts 343
2.2.1.3 Certifi cates 344
2.2.1.4 Other equity-like financial instruments 345
2.2.2 Methodology for the standard market size 346
2.3 Interim conclusion 348
3. Share trading-obligation 348
3.1 General 348
3.2 Assessment of scope in relation to third countries 349
3.2.1 ESMA key proposals and observations 349
3.2.2 Interim conclusion 352
3.3 Assessment of SIs as eligible venues 353
3.3.1 ESMA key proposals and observations 353
3.3.2 Interim conclusion 354
3.4 Assessment of exemptions 355
3.4.1 ESMA key proposals and observations 355
3.4.2 Interim conclusion 358
4. Performing calculations and maintaining databases 358
4.1 General 358
4.2 Assessment of the operational elements of the double volume cap 359
4.2.1 Application of the double volume cap to instruments without 12 months of data 359
4.2.2 Publication of ESMA reports within five working days 360
4.2.3 Mid-month reports 360
4.3 Assessment of the ESMA IT Systems (FIRDS/FITRS) 361
4.4 Interim conclusion 363
5. Concluding remarks 364
VIII. Conclusion about MiFID II 365
IX. Conclusion about the development from ISD to MiFID II 367

Part II: Equity post-trade transparency 371

Chapter 6 Conceptual framework of equity post-trade transparency 373
I. Introduction 373
II. Defi nition of equity post-trade transparency 373
III. Types of post-trade data 374
1. Coverage 374
2. Speed 375
3. Volume and time of the trade 376
4. Identity disclosure versus anonymity 377
IV. Different data needs 377
V. What is the optimal degree of equity post-trade transparency? 379
VI. Bottom-up versus top-down 379
VII. Conclusion 381

Chapter 7 Equity post-trade transparency under the ISD 383
I. Introduction 383
II. RMs 384
1. ISD equity post-trade transparency obligations 384
2. FESCO guidance on post-trade transparency obligations 386
3. National post-trade transparency obligations 387
4. Exceptions to the ISD, FESCO, and national post-trade transparency obligations 389
5. Background 390
5.1 Different market structures 391
5.2 Minimum harmonisation 394
5.3 Limited implementing powers for EU institutions 395
III. Investment fi rms 396
1. A national equity post-trade transparency approach 396
2. ATSs and order internalising systems 396
2.1 FESCO standards for ATSs and order internalising systems 397
2.2 CESR standards for ATSs 397
3. The dominant role of RMs in publishing post-trade information 398
3.1 Factor 1: optional ISD concentration-rule 399
3.2 Factor 2: national regulation 399
3.3 Factor 3: modernization of EU RMs 400
4. Background 400
IV. Conclusion about the ISD 401

Chapter 8 Equity post-trade transparency under MiFID I 405
I. Introduction 405
II. RMs and MTFs 407
1. Equity post-trade transparency obligations 407
1.1 Goal 407
1.2 Scope 408
1.2.1 Venues 408
1.2.2 Financial instruments 408
1.2.3 Traded in the system 409
1.3 Types of equity post-trade data: price, volume, time, and speed 409
1.3.1 General 409
1.3.2 Timing of the publication (speed) 410
1.4 Might RMs and MTFs publish post-trade data beyond MiFID I? 411
1.5 Background 411
1.5.1 Goals 411
1.5.2 Limitation to shares admitted to trading on an RM 413
1.5.3 Introduction of the MTF 414
1.5.4 Minimum set of post-trade data to publish 415
1.5.5 Publication of the RM or MTF market identifier code 415
1.5.6 Timing of equity post-trade data 416
1.5.7 Increase in harmonization 417
2. Deferral of equity post-trade data publication 418
2.1 Goal 418
2.2 Conditions 419
2.3 Differences with the MiFID I equity pre-trade transparency regime 420
2.4 Background 422
2.4.1 Goals 422
2.4.2 Length of deferral 423
2.4.3 Conditions 424
2.4.4 Differences with the MiFID I equity pre-trade transparency regime 425
3. Concluding remarks 426
III. Investment fi rms trading outside an RM or MTF 427
1. Equity post-trade transparency obligations 427
1.1 Goal 427
1.2 Scope 428
1.2.1 Venues 428
1.2.2 Financial instruments 428
1.2.3 Excluded transactions 428
1.3 Types of equity post-trade data: price, volume, time, and speed 429
1.3.1 General 429
1.3.2 Timing of publication (speed) 430
1.4 Responsibility for publication 431
1.5 May investment fi rms publish post-trade data beyond MiFID I? 432
1.6 Background 432
1.6.1 Goals of equity post-trade transparency 432
1.6.2 Similar equity post-trade transparency obligations as RMs and MTFs 433
1.6.3 Difference 1: exceptions to the equity post-trade transparency obligations 434
1.6.4 Difference 2: responsibility in making equity post-trade reports public 435
1.6.5 Difference 3: Anonymous publication 436
2. Deferral of equity post-trade data publication 436
2.1 Goal 436
2.2 Length and conditions 437
2.3 Background 438
3. Concluding remarks 438
IV. Performing calculations and operating databases 440
1. Calculations and estimates 440
1.1 MiFID I text 440
1.2 CESR guidance 442
1.2.1 CESR guidance of 2007 442
1.2.2 CESR guidance of 2010 443
1.3 Background 444
1.3.1 MiFID I text: setting the general calculation framework 444
1.3.2 CESR guidance of 2007 and 2010: performing the calculation of the average daily turnover 445
1.4 Interim conclusion 447
2. Databases 447
2.1 General 447
2.2 MiFID I Database for Shares Admitted to Trading on an RM 448
2.3 Background 450
2.3.1 MiFID I text: setting up the general publication framework 450
2.3.2 CESR guidance: operating and maintaining the MiFID I Database 451
2.4 Interim conclusion 452
3. Concluding remarks 452
V. Conclusion about MiFID I 453

Chapter 9 Equity post-trade transparency under MiFID II 455
I. Introduction 455
II. RMs and MTFs 457
1. Equity post-trade transparency obligations 458
1.1 Goal 458
1.2 Scope 458
1.2.1 Financial instruments 458
1.2.2 Traded in the system 459
1.3 Types of equity post-trade data: price, volume, time, and speed 459
1.3.1 General 459
1.3.2 Timing of publication (speed) 461
1.4 May RMs and MTFs publish post-trade data beyond MiFID II? 461
1.5 Background to the MiFID II equity post-trade transparency obligations 462
1.5.1 Goals of equity post-trade data publication 462
1.5.2 Equity-like instruments traded on a trading venue 463
1.5.3 Exclusion of OTFs from the equity post-trade transparency regime 464
1.5.4 Minimum set of post-trade data to publish 466
1.5.5 Publication of the RM or MTF market identifier code 467
1.5.6 Timing of post-trade publication 467
1.5.7 Maximum harmonised obligations 468
2. Deferral of equity post-trade data publication 470
2.1 Goal 470
2.2 Conditions 470
2.3 Similarities and differences with the MiFID II equity pre-trade transparency regime 473
2.4 Background 476
2.4.1 Goals 476
2.4.2 Level 1 text: Length of deferral 477
2.4.3 Level 2 text: length of deferral 478
2.4.4 Level 2 text: Conditions for authorizing deferral 480
2.4.5 Level 1 text: Increased role of ESMA and the Commission 482
3. Concluding remarks 484
III. Investment fi rms operating outside an RM or MTF 485
1. Equity post-trade transparency obligations 486
1.1 Goal 486
1.2 Scope 486
1.2.1 Venues 486
1.2.2 Financial instruments 486
1.2.3 Excluded transactions 487
1.3 Types of equity post-trade data: price, volume, time, and speed 489
1.3.1 General 489
1.3.2 Timing of publication (speed) 489
1.4 Anonymous publication through an APA 490
1.5 Responsibility for publication 491
1.6 May investment fi rms publish equity post-trade data beyond MiFID II? 492
1.7 Post-trade transparency requirements and third country transactions 493
1.8 Background 494
1.8.1 Goals 494
1.8.2 Similar equity post-trade transparency obligations as RMs and MTFs 495
1.8.3 Difference 1: exceptions to the equity post-trade transparency obligations 495
1.8.4 Difference 2: anonymous publication through an APA 497
1.8.5 Difference 3: responsibility for making equity post-trade reports public 498
1.8.6 Difference 4: explicit guidance for third country transactions 499
2. Deferral of equity post-trade data publication 500
2.1 Goal 500
2.2 Conditions 500
2.3 Background 502
3. Concluding remarks 503
IV. Performing calculations and operating databases 504
1. Reference data 504
1.1 General 504
1.2 Background 506
2. Calculations and estimates 508
2.1 General 508
2.2 Data collection 509
2.2.1 Reporting parties: RMs, MTFs, APAs, and CTPs 509
2.2.2 Content of the data to be reported 510
2.2.3 Frequency of data requests and response times 510
2.2.4 Format of the data 511
2.2.5 Storage of the data 512
2.2.6 Performing the calculations and estimates 512
2.2.7 Background 514
2.2.7.1 Level 1 and Level 2 text: main reasons why MiFID II is more extensive than MiFID I 514
2.2.7.2 Level 1 and Level 2 text: details of the data collection and storage rules 515
2.2.7.3 Level 2 text: methodology of the calculation and estimation rules 516
2.2.8 Interim conclusion 517
3. Databases 518
3.1 General 518
3.2 FIRDS 518
3.3 FITRS 519
3.4 Background 519
3.5 Interim conclusion 520
4. Hard Brexit scenario 521
5. Concluding remarks 522
V. MiFID II review 523
1. RMs and MTFs 525
1.1 ESMA key proposals and observations 525
1.2 Interim conclusion 526
2. Investment fi rms operating outside RMs and MTFs 527
2.1 ESMA key proposals and observations 527
2.2 Interim conclusion 528
3. Assessment of the real-time publication requirement 529
3.1 ESMA key proposals and observations 529
3.2 Interim conclusion 530
4. Assessment of MiFID II equity post-trade transparency requirements and third country transactions 531
4.1 ESMA key proposals and observations 531
4.2 Interim conclusion 532
5. Assessment of equity post-trade transparency calculations and databases 533
5.1 ESMA key proposals and observations 533
5.2 Interim conclusion 534
6. Concluding remarks 535
VI. Conclusion about MiFID II 536
VII. Conclusion about the development from the ISD to MiFID II 537

Part III: Publication and consolidation 541

Chapter 10 Conceptual framework of publication and consolidation 543
I. Introduction 543
II. Types of publication 543
III. Types of consolidation 545
1. Consolidated tape 546
2. Consolidated quote 548
IV. What is optimal publication and consolidation? 550
V. Bottom-up versus top-down 552
VI. Conclusion 553

Chapter 11 Publication and consolidation under the ISD 555
I. Introduction 555
II. Publication of equity pre- and post-trade data 555
1. ISD provisions 555
2. FESCO guidance 556
3. National provisions 557
3.1 Timing, content, and format 557
3.2 Technical accessibility 557
3.3 Accuracy 558
III. Consolidation of equity pre- and post-trade data 559
IV. Background 559
V. Conclusion about the ISD 561

Chapter 12 Publication and consolidation under MiFID I 563
I. Introduction 563
II. Publication of equity pre- and post-trade data 564
1. Publication arrangements 564
1.1 MiFID I provisions 564
1.2 CESR guidance: contingency arrangements 565
1.3 CESR guidance: responsibility 565
2. Details: content, format, and fl ags 566
2.1 Equity post-trade transparency 566
2.2 Equity pre-trade transparency 568
3. Timing 568
4. Technical accessibility 569
4.1 Automated processes 569
4.2 Protocols 570
5. Accuracy 571
5.1 Verifi cation process 571
5.2 Preventing duplicative post-trade reports 572
6. Disclosure of client limit orders 573
III. Consolidation of equity pre- and post-trade data 574
IV. Background 575
1. Level 1: equity pre- and post-trade data in a competitive market setting 575
2. Level 2: specifying the publication and consolidation rules 576
3. Level 2: specifi c provisions for client limit order disclosure 576
4. Level 2: excluding SI identity from equity post-trade reports 578
5. Level 3: CESR guidance 579
V. Conclusion 580

Chapter 13 Publication and consolidation under MiFID II 583
I. Introduction 583
II. Data reporting service providers 584
1. General 584
2. Authorisation and ongoing supervision 585
3. Future alterations following the ESA-review 586
III. Publication and consolidation of equity post-trade data 587
1. Publication through an APA 588
1.1 General 588
1.2 Details: content, fl ags, and formats 588
1.2.1 Content 588
1.2.2 Flags 591
1.2.3 Formats 592
1.2.4 Similar standards for investment firms reporting to APAs 592
1.3 Timing 592
1.4 Technical accessibility 593
1.5 Accuracy 595
1.6 Organisational requirements 596
2. Publication through an RM or MTF 596
2.1 Details: content, fl ags, and formats 597
2.2 Timing 598
2.3 Technical accessibility 598
2.4 Accuracy 599
3. Consolidation of equity post-trade data: introducing a framework for CTPs 600
3.1 Scope of the CTP framework 600
3.2 Competition among CTPs and data vendors 601
3.3 Details: content, fl ags, and formats 601
3.4 Timing 602
3.5 Technical accessibility 603
3.6 Accuracy 603
3.7 Organisational requirements 604
3.8 Additional services 604
3.9 MiFID II Review Clause: the establishment of a single CTP? 605
4. Background 605
4.1 Level 1: a tighter publication and consolidation regime 605
4.1.1 Lack of high quality and consolidated equity post-trade data 605
4.1.2 Framework for APAs 606
4.1.3 Framework for CTPs 608
4.2 Level 2: specifying the tighter publication and consolidation regime 610
4.2.1 CESR advice to the Commission 610
4.2.2 ESMA advice to the Commission 612
5. Concluding remarks 614
IV. Publication and consolidation of equity pre-trade data 615
1. Publication arrangements for equity pre-trade data 616
2. Publication of SI quotes: arrangements of RMs, MTFs, and APAs 617
2.1 The role of RMs, MTFs, and APAs in publishing SI quotes 617
2.2 Details: content and formats 618
2.3 Timing 619
2.4 Technical accessibility 620
2.5 Accuracy 621
3. Publication of SI quotes: proprietary arrangements 621
3.1 Content and format 621
3.2 Timing 622
3.3 Technical accessibility 622
3.4 Accuracy 622
4. Publication of equity pre-trade data by RMs and MTFs 623
4.1 Content and format 623
4.2 Timing 624
4.3 Technical accessibility 625
4.4 Accuracy 625
5. Publication of unexecuted client limit orders 626
6. Consolidation of equity pre-trade data: market-driven 628
6.1 Industry-led consolidation services 628
6.2 MiFID II Review Clause: a consolidated best bid and offer system (quote)? 628
7. Background 629
7.1. Reasons for the overall bottom-up approach 629
7.2 Reasons to introduce some top-down elements 630
8. Concluding remarks 631
V. MiFID II review 632
1. Reasons for the lack of equity CTPs 633
2. Risk assessment of not having an EU equity CTP 634
3. International experience with equity CTPs 636
3.1 Situation in the United States 636
3.2 Experience of Canada 639
3.3 Interim conclusion 643
4. Key factors in establishing a successful equity CTP 644
4.1 Quality of the data input to the CTP 645
4.2 Mandatory contribution of post-trade data from RMs, MTFs, and APAs 646
4.3 Mandatory consumption 647
4.4 Coverage 649
4.5 Publication time of the consolidated data 651
4.6 Number of CTPs and related competition 652
4.7 CTP fees and revenue sharing 653
4.8 Governance framework 655
4.9 Interim conclusion 655
5. Feasibility of an equity consolidated quote 659
6. Impact of Brexit on the establishment of an EU equity CTP 660
7. Concluding remarks 660
VI. Conclusion about MiFID II 661
VII. Conclusion about the development from the ISD to MiFID II 662

Part IV: Equity pre- and post-trade data prices 667

Chapter 14 Conceptual framework of equity pre- and post-trade data prices 669
I. Introduction 669
II. Data price variables 670
1. Head count 670
2. Use restrictions 672
3. Type of equity pre- and post-trade data 673
III. When are data prices ‘reasonable’? 675
1. Production and dissemination costs 676
2. Profi ts a data supplier can make 677
3. Price discrimination 678
4. Ownership of equity pre- and post-trade data 679
IV. Bottom-up versus top-down 681
V. Conclusion 681

Chapter 15 Data prices under the ISD 683
I. Introduction 683
II. CESR standards for ATSs 683
III. National provisions 684
IV. Background 685
V. Conclusion about the ISD 687

Chapter 16 Data prices under MiFID I 689
I. Introduction 689
II. MiFID I text: provision of a reasonable commercial basis 689
1. General 689
2. Scope 690
3. Obligations 691
4. Background 693
III. CESR guidance: unbundling equity pre- and post-trade data 695
1. General 695
2. Scope 696
3. Obligations 696
4. Background 696
IV. Conclusion about MiFID I 698

Chapter 17 Data prices under MiFID II 701
I. Introduction 701
II. Separate equity pre- and post-trade data (disaggregation) 702
1. General 702
2. Scope 702
3. Obligation to separate equity pre- and post-trade data 703
4. Background 705
4.1 Level 1: a tighter regime for data disaggregation 705
4.2 Level 2: specifying the tighter rules for data disaggregation 706
5. Concluding remarks 708
III. Provision of a reasonable commercial basis 710
1. General 710
2. Scope 711
3. Obligations 712
3.1 Provide market data on the basis of costs and including a reasonable margin 713
3.2 Charge at the level of disaggregated data 715
3.3 Charge on a per-user basis 715
3.4 Unbundled from other services 716
3.5 Non-discrimination for similar types of users 717
3.6 Disclose pricing of market data (transparent commercial terms) 719
4. Background 720
4.1 Level 1: a tighter regime for a reasonable commercial basis 721
4.2 Level 2: specifying the tighter regime 722
4.2.1 Scope of the rules 722
4.2.2 Prices charged for data 724
4.2.2.1 Assessment of doing nothing, free of charge data, and quantitative price caps 724
4.2.2.2 Assessment of general principles and disclosure obligations 725
4.2.2.3 Assessment of revenue-based or cost-based controls 725
4.2.2.4 Final ESMA view: preference for general principles and disclosure obligations 726
4.2.2.5 Final MiFID II text 727
4.2.3 Per-user pricing model 727
4.2.4 Charge at the level of disaggregated pre- and post-trade data 728
4.2.5 Unbundling of data services from other services 728
4.2.6 Non-discrimination 729
5. Concluding remarks 730
IV. Free data 15 minutes after publication 732
1. General 732
2. Scope 733
3. Obligation 734
4. Background 736
5. Concluding remarks 739
V. MiFID II review 739
1. Overall developments 740
2. Providing data on a disaggregated basis 741
3. Providing data on a reasonable commercial basis 742
3.1 ESMA proposals on supervisory guidance 743
3.2 ESMA proposals on legislative changes 744
3.3 Interim conclusion 745
4. Making available data free of charge 15 minutes after publication 747
4.1 ESMA proposals 747
4.2 Interim conclusion 749
5. Concluding remarks 750
VI. Conclusion about MiFID II 751
VII. Conclusion about the development from the ISD to MiFID II 754
Synthesis and concluding remarks 759

Chapter 18 Synthesis 761
I. Introduction 761
II. What is EU equity pre- and post-trade transparency regulation? 762
1. Option one: a narrow defi nition 762
2. Option two: a broad defi nition 763
3. Concluding remarks 765
III. Why has EU equity pre- and post-trade transparency regulation increased? 765
1. Factor 1: Market philosophies 766
1.1 Market-led philosophy 767
1.2 Market-shaping philosophy 768
1.3 Impact of Brexit for EU market philosophies 770
1.4 Interim conclusion 770
2. Factor 2: Market structure 771
2.1 Market microstructure 772
2.1.1 Trading process on RM, MTFs, SIs and other platforms 772
2.1.2 Pre-trade transparency: liquidity and the nature and size of the venue 774
2.1.3 Post-trade transparency: liquidity and the nature and size of the venue 775
2.2 Concentrated versus fragmented markets 777
2.3 Financial instruments 778
2.3.1 Liquidity 779
2.3.2 Price formation 781
2.3.2.1 Type of fi nancial instrument 781
2.3.2.2 Where a fi nancial instrument is traded (trading location) 783
2.3.2.3 Through which trading system a fi nancial instrument is traded 784
2.3.3 Admission to trading and other admission criteria 787
2.4 Preferences of market participants 791
2.4.1 Dark liquidity on RMs and MTFs 792
2.4.2 Dark liquidity outside RMs and MTFs 795
2.4.3 Immediate versus deferred post-trade publication 796
2.4.4 Characteristics and a growing demand for pre- and post-trade data 798
2.5 Interim conclusion 804
3. Factor 3: technological innovation 805
3.1 Shift towards electronic trading 805
3.2 New types of venues 807
3.3 New trading techniques 809
3.3.1 Remote access, effi cient order management, and reference prices 809
3.3.2 Algorithmic trading in general 809
3.3.3 A specifi c type of algorithmic trading: high frequency trading 810
3.3.4 Growth in frequent batch auctions 813
3.4 More calculations and databases 814
3.5 Interim conclusion 817
4. Concluding remarks 819
IV. What are the consequences of increased EU equity pre- and post-trade transparency regulation? 820
1. Consequences for the amount and timing of equity pre- and post-trade data 821
1.1 Situation under the ISD 821
1.1.1 Advantages of the ISD approach 822
1.1.2 Disadvantages of the ISD approach 822
1.1.3 Interim conclusion 823
1.2 Situation under MiFID I 824
1.2.1 Main changes from the ISD to MiFID I 825
1.2.1.1 Difference 1: change in financial instruments 825
1.2.1.2 Difference 2: change in venues 825
1.2.1.3 Difference 3: shift in political controversy 827
1.2.1.4 Difference 4: increase in detail 829
1.2.2 MiFID I Review: scope 830
1.2.3 MiFID I Review: RM and MTF equity pre-trade transparency waivers and waiver process 831
1.2.4 MiFID I Review: equity pre-trade transparency outside RMs and MTFs 832
1.2.5 MiFID I Review: equity post-trade transparency on RMs, MTFs, and outside such venues 833
1.2.6 MiFID I Review: performing calculations and operating databases 833
1.2.7 Interim conclusion 834
1.3 Situation under MiFID II 836
1.3.1 General 836
1.3.2 Main changes from MiFID I to MiFID II 837
1.3.3 MiFID II Review: scope 837
1.3.4 MiFID II Review: equity pre-trade transparency on RMs and MTFs 838
1.3.5 MiFID II Review: equity pre-trade transparency outside RMs and MTFs 841
1.3.6 MiFID II Review: equity post-trade transparency for RMs, MTFs and investment firms 842
1.3.7 MiFID II Review: share trading-obligation 843
1.3.8 MiFID II Review: performing calculations and operating databases 845
1.3.9 Hard Brexit-scenario 845
1.3.10 Interim conclusion 848
2. Consequences for published and consolidated equity pre- and post-trade data 849
2.1 Situation under the ISD 850
2.2 Situation under MiFID I 852
2.2.1 Main changes from ISD to MiFID II 852
2.2.2 MiFID I Review: equity pre- and post-trade data 852
2.2.3 Interim conclusion 853
2.3 Situation under MiFID II 854
2.3.1 Main changes from MiFID I to MiFID II: equity post-trade data 854
2.3.2 Main changes from MiFID I to MiFID II: equity pre-trade data 855
2.3.3 MiFID II Review: equity post-trade data 856
2.3.4 MiFID II Review: equity pre-trade data 857
2.3.5 Hard Brexit-scenario 858
2.3.6 Interim conclusion 858
3. Consequences for equity pre- and post-trade data prices 859
3.1 Situation under the ISD 860
3.2 Situation under MiFID I 862
3.2.1 Main changes from ISD to MiFID I 862
3.2.2 MiFID I Review 863
3.3 Situation under MiFID II 863
3.3.1 Main changes from MiFID I to MiFID II 863
3.3.2 MiFID II Review 864
3.4 Interim conclusion 864
4. Concluding remarks 867
V. Conclusion 869

Chapter 19 Concluding remarks 875
I. Research question and objective 875
II. Defi nition of EU equity pre- and post-trade transparency regulation 876
III. Main factors for the increase of EU equity pre- and posttrade transparency regulation 877
1. Market philosophies 877
2. Market structure 878
2.1 Market microstructure 878
2.2 Amount of concentration 880
2.3 Specifi cs of fi nancial instruments 882
2.3.1 Liquidity 882
2.3.2 Price formation 883
2.3.3 Through which trading system a financial instrument is traded 884
2.4 Preferences of market participants 887
3. Technological innovation 887
3.1 Shift from open outcry/telephone to electronic markets. 887
3.2 New types of venues 888
3.3 New trading techniques 888
3.4 More calculations and databases 889
IV. Consequences of the increase of EU equity pre- and post-trade transparency regulation 889
1. Successful areas 890
2. Unsuccessful areas 891
V. Lessons learned 892

Summary 897
Samenvatting 915
References 935
List of literature 937
List of reports, guidance, and other publications 947
List of case law 969
List of directives 971
List of regulations 973
List of equivalence decisions 975
Index of key terms 977
Curriculum vitae 1017