Thursday, April 30, 2020 Stamford, CT USA — Amid the unprecedented volatility sparked by the COVID-19 crisis, European regulators are watching the region’s financial market infrastructure closely to see how it performs under extreme stress, and for signs of where rules should be adjusted once the current turbulence subsides. 

Two years after the implementation of MiFID II regulators entered 2020 weighing a series of possible revisions to that sweeping set of regulations. The COVID-19 outbreak likely will delay any broad changes as regulators respond to the crisis. However, regulators continue to examine the role “dark trading” plays in the system—especially during extreme volatility. 

To date, the region’s equity market infrastructure has held up well. “The shift of trading volume from dark trading to “lit” venues like exchanges and MTFs during the COVID-19 crisis highlights an impressive mobility of order flow,” says Shane Swanson Senior Analyst for Greenwich Associates Market Structure and Technology and author of European Investors' Take on Market Structure Issues 2020.

To regulators, the recent migration of trading volumes to exchanges and MTFs will also highlight the importance of a holistic approach in reviewing potential changes to market structure. Among the changes currently under consideration are reforms to the rules governing when and how much trade volume can be executed on dark venues, and revisions to rules on “periodic auctions” to ensure that they are not being used to circumvent transparency requirements.  

Traders also think regulators will need to take more direct action to create a European consolidated tape. As part of MiFID II, regulators laid out a set of rules for the development of a European consolidated tape provider (CTP) and invited private sector market participants to submit proposals. To date, no vendor has risen to the challenge.

“Nearly 90% of European equity traders think a CTP is needed, but about two-thirds think it will only be created through some form of regulatory mandate,” says Shane Swanson.