MiFID Stock Headache for U.S., Swiss Trades Set to Be LiftedBy
European Commmission plans would enable trading outside EU
Plan covers exchanges, U.S. alternative trading systems
The European Union is preparing to remove one of the main headaches dogging stock traders globally, easing their transition to MiFID II by allowing them to continue dealing on U.S. and Swiss platforms.
The European Commission, the EU’s executive arm, intends to decide that oversight in the two countries is equivalent to that in the bloc, key findings that would prevent a potential rupture in markets, according to draft decisions seen by Bloomberg News. The findings would let trading in many blue chip stocks remain on U.S. dark pools and exchanges, including those run by Nasdaq Inc., Intercontinental Exchange Inc. and SIX Swiss Exchange AG.
The move, coming less than two months before the Jan. 3 start of the law, would be the latest EU step designed to smooth the transition to the revised Markets in Financial Instruments Directive, one of the biggest changes to financial regulations in the bloc in decades. The commission has said international coordination is one of the top priorities prior to January.
The commission is continuing to work on the equivalence issue and intends to complete the decisions by the end of the year, according to an official at the commission. The commission declined to elaborate.
Lack of an equivalence decision could upend firms’ cross-border trading reach or force global securities businesses to reinvent workflows, reorganize internally, or set up shop abroad for tasks as simple as buying a share of a U.S. or European company.
Many large companies have shares listed on exchanges around the world, but the new MiFID rules state that if a stock is traded on an EU-regulated platform, EU investment firms must do all their transactions there or on a foreign venue deemed equivalent. So without an equivalence ruling, trading could be forced off platforms outside the EU, even if that’s where most activity occurs, and on to a smaller EU venue.
“It was illogical to trade a U.S. stock in a market where there wasn’t the primary source of liquidity,” Rebecca Healey, head of European market structure and strategy at Liquidnet Holdings Inc., said in an interview. “Ultimately that would provide a poor deal for end investors. One of the cornerstones of MiFID II is improving best execution and a fairer deal for end investors.”
The commission is also preparing to grant the equivalence finding to U.S. alternative trading systems, an umbrella term that includes dark pools, where a major chunk of stock-trading occurs. The finding would cover more than 80 of the alternative trading systems, including those run by some of the world’s biggest banks.
Dark pools and other ATS platforms accounted for about 38.5 percent of U.S. equity volume in October, according to data compiled by Bloomberg. UBS Group AG, Credit Suisse Group AG and Deutsche Bank AG run some of the biggest of the systems in the U.S., according to data from the Financial Industry Regulatory Authority.
— With assistance by Alexander Weber, and John Glover