Research on Competition and Regulation in European Equities Trading: An Executive Summary

Abstract

Since the implementation of the European Markets in Financial Instruments Directive (MiFID), multilateral trading facilities (MTF) have broken down the quasi-monopoly which has been traditionally held by national exchanges across Europe. To date, incumbent exchanges and various MTFs fiercely compete for order flow in European equities. Naturally, there is tension between those in favor of order flow consolidation on a single market and those demanding competition. In contrast to U.S. Regulation NMS, single trading venues across Europe are not formally integrated and best price policy is not enforced. According to MiFID, competition is based on multiple factors for instance price, trading costs, speed, or probability of execution. In this executive summary we present an overview over recent developments in European equities trading and related literature. Finally, we highlight our research ndings which shed light on the questions of trading venue competition between regulated markets (RM) and MTFs, market quality and price discovery in fragmented markets, investors' choice of trading venue, and regulatory issues.