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liquidity, interconnection between trading venues, efficiency of the price formation process, modernising trading protocols and trading.
Implemented as part of Reg NMS in 2005, the US order protection rule mandates that orders be executed on exchanges that show the best price. Orders are re-routed to other competing venues if it cannot be executed at what is considered the best price.
The European Commission’ s consultation has asked participants for their assessment of EU infrastructure to cater for the rerouting of orders to venues offering the best price – as per the requirements of the rule. It has also asked respondents to note if they think the geographical positioning of venues would pose an issue, and what the necessary arrangements and costs could be.
Those responding are 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 touches 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 has 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 relate to what respondents believe could be barriers to integration across the 27 member states and their markets. It also asks 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 assesses several other market areas including dark trading levels.
The paper asks 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 are also prompted on their thoughts on reference price waiver is fit for purpose and asks them to assess the current criteria for reference price.
The return of VWAP crossing? Notably, the consultation asks 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 follows European regulators’ decision at the end of last year to bring an abrupt and unexpected end to a group of trading venue’ s plans to launch trajectory crossing in the region with a lastminute 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 hit back from several parties – namely the venues looking to launch these products in Europe.
However, Tuesday’ s consultation suggests 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
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