[ THOUGHT LEADERSHIP | THE SWISS STOCK EXCHANGE]
MIFID REVIEW:
The long way towards
data excellence
Price discovery through efficient liquidity pooling is the core function of a securities
exchange. The Swiss Stock Exchange (SIX) has a solid track record of delivering
consistent high-quality market data, both in terms of content and latency. SIX is
actively involved in industry initiatives aimed at promoting better data standards.
W
hile the original MiFID
(Markets in Financial
Instruments Directive)
introduced more competition
in equity markets, the second
iteration is looking to bring greater
overall transparency to OTC
markets. It also covers other asset
classes such as bonds, derivatives
and structured finance products.
As part of this, the rules have
banned the notoriously opaque
broker crossing networks allowing
for a proliferation of systematic
internalisers (SIs).
This has had unintended
consequences, namely increased
market fragmentation. Across
regulated markets (RMs) and
multilateral trading facilities
(MTFs), less transparent
execution functionalities - such as
periodic auctions - are becoming
increasingly popular. As a result,
the share of price forming lit
trading activity has gone down.
36 // TheTRADE // Spring 2020
The data accuracy challenge
Central to MiFID II is that
investment firms obtain best
execution and price discovery
when trading, and evidence they
have done so with their own
clients. However, the rules are
making this difficult. With the
multitude of new trading venues,
it is becoming much harder –
arguably impossible – for market
users to accurately screen all of
their trading venues’ data on a real-
time basis to obtain the best price
for individual assets.
Although both MiFID I and
its successor have helped create
greater market competition,
the rise of alternative trading
venues has had an adverse impact
on transparency. While home
markets still act as reference
price setters for liquid equities,
investment firms need to prove
they have searched for the best
price across multiple liquidity
Marc Berthoud, Head Exchange Data
Strategy, Securities & Exchanges, SIX
pools. These various liquidity
pools unfortunately demonstrate
unlevelled characteristics in terms
of quality and latency. For this
same reason, it has also become