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ESMA has proposed that periodic auctions be defined and labelled as ‘ non-price forming ’ systems that are subject to certain pre-trade transparency requirements . The regulator also suggested further consideration that orders submitted during the auction call phase be more transparent .
However , just 22 % of all market participant respondents to Rosenblatt ’ s survey supported the move to require full disclosure of all orders entered in each auction phase , while less than 20 % of buy-side respondents supported the move . In fact , a majority of around 37 % of buy-side respondents , and 31 % of all respondents , agreed that periodic auction systems do not need regulatory reform .
Periodic auctions have been the subject of controversy as they emerged as a new trading venue under MiFID II in Europe . The EU markets regulator had previously obligation in its review consultation . ESMA has instead suggested increasing minimum quoting size for SIs to 100 % of SMS ( standard market size ).
Few buy-side firms were in favour of removing SIs under the share trading obligation as suggested in the consultation , with most highlighting the benefits of using SIs and their important role in providing principal liquidity for large trade sizes .
Rosenblatt ’ s poll showed that a majority of 75 % of buy-side respondents support more granular tagging of SI trades in public data feeds . There has been debate in the industry over the quality of SI data , and lack of clarity on which trades represent addressable and non-addressable liquidity . France ’ s Autorité des Marchés Financiers recently concluded a study on the role of SIs in the French equity market and described the contribution of
SIs to transparency in the market as ‘ very limited ’.
Finally , Rosenblatt polled market participants on the bid to establish a consolidated tape in Europe and found opposing views from respondents on whether the tape should cover pre-trade transactions , posttrade transactions , or both .
“ The responses also show broad support for a consolidated tape but there is still little agreement on what form it should take , more than a decade after MiFID fragmented European equity trading ,” Rosenblatt ’ s Puaar added .
In December , ESMA officially recommended the introduction of a real-time consolidated tape in for equity instruments as a solution to the increasing issue of the costs of market data . Despite the lack of clarity on how the tape should look , it has been at the forefront of many discussions on the MiFID II review .
MiFID II laid out the require- considered regulatory intervention as volumes in auctions surged , prompting concerns that they were being used by market participants to circumvent the double volumes caps for dark trading .
Market participants , particularly those on the buy-side , were quick to refute the concerns , stressing the proven benefits that periodic auctions can provide , including an ability to show natural liquidity , reducing costs and helping firms achieve MiFID II best execution .
Elsewhere , systematic internalisers ( SIs ) will see fewer sweeping changes under ESMA ’ s recommendations , despite proposing the trading venues be removed completely under the share trading
“ There is still little agreement on what form [ the consolidated tape ] should take , more than a decade after MiFID fragmented European equity trading .”
ANISH PUAAR , MARKET STRUCTURE ANALYST FOR EUROPE ,
ROSENBLATT SECURITIES ments for voluntarily consolidated tape providers to come to the fore , however , ESMA recognised within its evaluation that it appeared unlikely that within the current legal framework a consolidated tape provider will emerge in the future .
“ A successfully governed European consolidated tape would be transformative for markets and for investors ,” said BlackRock in its response to the MiFID II review consultation earlier this year . “ It would bring clear benefits ; increasing transparency and strengthening best execution , while simultaneously improving competitiveness of European capital markets and contributing to the delivery of Capital Markets Union .”
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