The European Securities and Markets Authority opened a consultation paper proposing amendments to this year’s Mifid II rules for tick sizes — or trading increments — that exchanges must quote investors.
The Paris-based regulator is drawing up rule changes so their own rules do not “create an [unlevel] playing field” against London-based markets.
The UK capital is home to most pan-European markets, such as Cboe Europe, the London Stock Exchange Group’s Turquoise and Aquis Exchange.
“There’s a view from some in Europe that investors are best served by having them transact on venues they [the regulators] have jurisdiction over,” said Rebecca Healey, head of Emea market structure & strategy at Liquidnet, a UK trading venue.
The proposed rule changes come just over six months after Mifid II’s introduction and also reflects how Brexit has upended many of the legislation’s assumptions and calculations.
Most of the trading thresholds in the rules were designed with London as part of the European market. Just under a fifth of EU-listed shares could be affected because they are mainly traded in the UK, Esma said.
Steven Maijoor, chairman of Esma, said the new rules may put EU markets at a competitive disadvantage. “This might result in scarcer and shallower liquidity being available on EU trading venues, which can be detrimental to those trading on those venues,” he said.
At present, trading venues must quote in tick sizes based on the average daily number of transactions on the most liquid market in the EU. Typically, that market is Cboe Global Markets Europe, based in London.
Policymakers want to ensure tick sizes quoted on non-EU venues are the same size as venues inside the bloc. Smaller sizes may attract investors to trade on their markets. Cboe Europe and Turquoise have already submitted applications to run EU venues.
Esma’s proposals will give national regulators more leeway in making their own calculations.
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