One of the big European regulatory changes in investment in recent years in Europe has been MiFID. This framework that regulates financial markets and instruments was implemented with many objectives, including promoting trading from OTC markets (over the counter) to trading centers (regulated markets, multilateral trading systems or organized contracting systems). The National Securities Market Commission (CNMV) published a report this Wednesday to gauge fragmentation, price formation and liquidity as a result of these changes, and one of the conclusions is that, for now, “It does not seem that there is a transfer from OTC trading to market environments, in general terms.” Therefore, it is suggested that “it might be appropriate to start a certain debate about whether the objectives of the MiFID regulations are being achieved and whether additional objectives would be desirable.”
Although it has not been possible to attract money from OTC markets, in recent years The main operators have lost share in favor of other alternative platforms This regulation opens the door to this. In Spain, for example, the share of BME (Spanish Stock Exchanges and Markets) in total market trading has fallen from 62% in 2018 to 44% registered in the first half of 2024.
The analysis shows that the process of fragmentation of the negotiation of Spanish shares (their negotiation outside the trading center of origin) has continued in recent years “in a similar way to other European markets.” According to the study, The second market would be CBOE, which accounts for around 40% of the trading, hot on the heels of BME. “In the case of total trading in the market, BME’s market share has suffered a downward trend that seems to have attenuated in the last two years. On the other hand, other trading centers have been emerging, among which CBOE stands out. which, with a somewhat lower relevance than that of BME, has become its main competitor and also that of other European trading centres”, reads the study.
However, the total market trading of Spanish shares (versus bilateral trading) is one of the highest of all the EU countries analysed, close to 70% of the total traded. “Within the market operations, a certain stability is also observed between its 2 large components, since that 70% is divided between 40% for the operations on-book and 30% for operations off-book”, develop the study.
In general, the study assesses that “for all the EU countries analyzed, it is observed that the markets of origin have a much greater preponderance in book trading compared to their competitors, while their relevance is notably lower when considering all market negotiation”.
On the other hand, price formation indicators reveal that centers of origin retain the most important role in price formation. More than 40% of the times when prices are improved it is done in the markets of originpercentages that can rise to 60% or more. In Spain, BME improved market prices almost 50% of the time, on average, in the period between the fourth quarter of 2021 and the second quarter of 2024.
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