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Those responding to the consultation were also invited to give their opinion on the effectiveness of best execution rules in Europe, requiring them to list whether the EU or the US framework is most effective for obtaining the best results for clients.
Brought in under Mifid II, the best execution obligation requires that firms take all necessary and reasonable steps to ensure the best result for an order.
The European Commission’ s consultation, which closed on 10 June, touched on a wide range of market areas as part of its objective to gather stakeholder feedback on obstacles to market integration across the EU. When it comes to trading specifically, the paper had a heavy focus on market harmonisation, with many sections dedicated to the potential benefits and feasibility of creating more integrated markets in Europe.
Numerous questions related to what respondents believe could be barriers to integration across the 27 member states and their markets. It also asked respondents to assess both direct execution and indirect execution of orders, as well as the various fees charged for connections to venues across member states.
The 375-question strong consultation also assessed several other market areas including dark trading levels.
The paper asked participants why they think dark trading is growing, whether that be regulation, liquidity fragmentation, order flow competition, technological developments, or the growth of ETFs and passive management. Participants were also prompted on their thoughts on if reference price waiver is fit for purpose and asked them to assess the current criteria for the reference price.
The return of VWAP crossing? Notably, the consultation asked if trading venues should be allowed to use the negotiated price waiver to execute negotiated transactions that take place with the assistance of a system or trading protocol operated by the trading venue.
The consultation process followed European regulators’ decision at the end of 2024 to bring an abrupt and unexpected end to a group of trading venues’ plans to launch trajectory crossing in the region with a last-minute rule change. Said venues had been planning to use the waiver as the basis for their models.
Featured in its final report on equity transparency, published in December, the European Securities Markets Authority( ESMA) added an additional line to its text surrounding the specific characteristics of negotiated transactions, preventing exchanges from using the model on their own behalf. The rule change put a stop to exchanges’ plans in Europe.
The decision has received significant backlash from several parties – namely the venues looking to launch these products in Europe.
However, the questions posed in the April consultation suggest the European Commission could be open to reassessing.
24-hour trading, the consolidated tape and the close The extension of market trading hours for equities has become a hot topic in the US in recent months. While a handful of technology providers have offered out of hours trading for several years now, the decision by several incumbent exchanges to begin exploring implementing an extension of trading hours suggests the theme is becoming mainstream in the US.
Europe, however, seems to tell a different story. A few years ago, European participants were petitioning for the shortening of market hours. As US venues apply to regulators for the lengthening of their trading day, their European peers have shown little to no sign of following suit.
The European Commission’ s consultation – opened in April – asked respondents how positive they deem extended trading hours / 24-hour trading to be for the development and competitiveness of EU markets, also asking if it is“ advantageous” or“ risky”.
When it comes to the tape, the Commission also asked for opinions from participants on several technical elements including how effective lifting the anonymity of the EBBO, the importance of expanding the depth of the EBBO displayed, and the speed at which core market data should be disseminated by the tape.
Centrally the European watchdog asked whether systematic internalisers( SIs) should contribute to the tape and which amendments to their regulatory framework would be required to effectively include them as contributors of equity pretrade data.
The consultation also explored bilateral trading levels, single market marker venues and ghost liquidity, as well as closing auction activity, with several questions focused on why participants think the close has grown so much and what fees they are charged on competing venues.
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