I've been meaning to write a few insights into the MiFID review, and will do so in the future. Meantime, a colleague from Credit Agricole's subsidiary, CA Cheuvreux, sent me a really interesting white paper on the MiFID review and has kindly given me premission to post it here for Finanser readers.
Issues linked to Crossing Engines (internal order crossing systems) can only be properly understood after a review of the new landscape that emerged following MiFID. We witnessed a destructuring of the market, which has resulted in a war of tick sizes and the emergence of a new category of entrants favoured by the pricing set up by exchanges. During this period, traditional players saw their costs soar, a factor that could lead to the exit of the weakest players without sufficient financial wherewithal to cope with the expenses resulting from MiFID. Pre-transparency, which was one of the major vectors of MiFID, has deteriorated, and liquidity on the lit markets has become an illusion. It is precisely the deterioration of the quality of the lit side that has driven participants to increase their use of dark venues (dark part of MTFs and Crossing Engines) in order to protect the interests of clients wishing to access all liquidity pools. Concerns that subsequently rose regarding price formation mechanisms cannot be lifted by regulating dark pools indiscriminately but rather by restoring the quality of the lit world.
Download the 7-page white paper here: CA Cheuvreux on MiFID