MiFID, Reg NMS and competition across trading venues in Europe and the USA
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 27 July 2010
Abstract
Purpose
The purpose of this paper is to evaluate how markets in financial instruments directive (MiFID) and regulation national market system (Reg NMS) affect the competition for order flow among trading venues in, respectively, Europe and the USA.
Design/methodology/approach
The paper examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and the US securities markets.
Findings
Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the European Union ones, in strengthening competition for order flow among trading venues.
Research limitations/implications
Regulatory factors can only partly explain the current structure of the European and US securities markets. Technology and heterogeneity in traders' demand are other important factors that concur in shaping the European and US markets.
Practical implications
The degree of competition for order flow among trading venues depends on how regulations define the best execution duty, the availability of updated and consolidated pre‐trade (i.e. quotations) and post‐trade (i.e. transactions) information and the efficiency of post‐trading infrastructures.
Originality/value
The paper addresses issues not yet investigated and provides valuable insights for financial intermediaries, incumbent and prospective exchanges as to the competition in the securities industry, and to regulators as to the likely impact of the new regulations.
Keywords
Citation
Petrella, G. (2010), "MiFID, Reg NMS and competition across trading venues in Europe and the USA", Journal of Financial Regulation and Compliance, Vol. 18 No. 3, pp. 257-271. https://doi.org/10.1108/13581981011060826
Publisher
:Emerald Group Publishing Limited
Copyright © 2010, Emerald Group Publishing Limited