Reshaping Order Execution and the Role of Interest Groups under MiFID II

Abstract

The controversial and long-awaited Commission Proposals to revise the cornerstone Markets in Financial Instruments Directive 2004 (MiFID I) were presented in October 2011. This article places this important reform (MiFID II) in context by examining the impact of MiFID I since its application to EU financial markets in November 2007 and by considering what MiFID I’s impact suggests for the design of the MiFID II regime. It considers how MiFID I reshaped the EU share trading marketplace and how the dominant interests which shaped MiFID I’s regulatory design fared. It also examines how those interest groups are seeking to shape MiFID II and the implications. It suggests that the influence of interest groups may have led to an overly ambitious Proposal which is excessively concerned with investment firm and trading platform interests, and not sufficiently concerned with the overall efficiency and effectiveness of EU share trading markets. It calls for a more modest approach to reform, based on fine-tuning MiFID I.

Keywords: MiFID; order execution; exchanges; transparency; trading systems

JEL Classification: G1, G2, G10, G15, G18, K2, K22, N20