Setting an institutional and regulatory framework for trading platforms. Is there a case for a new trading venue under MiFID?
| Date | 15 February 2013 |
| Pages | 69-83 |
| Published date | 15 February 2013 |
| DOI | https://doi.org/10.1108/13581981311297830 |
| Author | Diego Valiante |
| Subject Matter | Accounting & finance |
Setting an institutional and
regulatory framework for
trading platforms
Is there a case for a new trading venue
under MiFID?
Diego Valiante
European Capital Markets Institute, Centre for European Policy Studies,
Brussels, Belgium
Abstract
Purpose – The purpose of this paper is to provide a theoretical framework for the legal classification
of trading venues in financial markets. Currently, there is no clear definition of when a trading
platform should be classified as multilateral or bilateral. This paper builds a theoretical framework
that will allow regulators to define the border (with its regulatory implications) between multilateral
and bilateral trading venues.
Design/methodology/approach – The approach used for this paper focuses on looking at the
different trading models available in financial markets and analyzing their key features in order to
bring up recurrent aspects that have helped to build the theoretical framework.
Findings – Multilateral trading facilities would not only be systems bringing together multiple
interests from third parties, but those systems bringing together multiple interests with “no discretion”
(ex ante rules) vis-a
`-vis membership, admission of products to trading, and matching of interests. All
trading venues that do not meet these three key requirements will be falling under the bilateral trading
classification, which implies the application of fiduciary duties, such as conflicts of interest rules and
best execution. The paper then advances a proposal to solve the legal classification issue in the
revision of the Markets in Financial Instruments Directive in Europe (MiFID). In effect, despite
the claim that the Organised Trading Facility (EU) and the Swap Execution Facility (USA) would
be equivalent categories, EU and US regulators, respectively, have taken divergent paths on how these
venues will ultimately look.
Originality/value – The value of the paper is in its ability to provide a theoretical framework to
something that has not been assessed in these terms previously. Today, only the SEC is trying, for the
first time, to have a definition of when a RFQ model can be defined “multilateral”. This topic has been
rarely discussed before in financial regulation, while it is extensively discussed in market
microstructure (but on the market structure implications, rather than its regulatory and policy
implications).
Keywords Financial markets,Regulation, European directives,Market structure,
Markets in FinancialInstruments Directive, Tradingplatforms, Financial regulation,
Financial instruments, Trading execution,Derivatives
Paper type General review
Introduction
Last October 2011, the European Commission released two legislative proposals[1] for
the revision of the Markets in Financial Instruments Directive (MiFID; European
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JEL classification – G15, G18, G24, G28, K22, L19
Trading
platforms
69
Journal of Financial Regulation and
Compliance
Vol. 21 No. 1, 2013
pp. 69-83
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981311297830
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