-In the view of the Fédération Bancaire Française (FBF), the reform of the ISD should hinge on two key principles:
a level playing field among order execution systems, i.e. the same rules must apply to the same functions;
pre-trade and post-trade transparency in order execution systems, with a priority rule for access to those systems.
These principles have not been given due consideration in the Commission's proposal. On the key questions of transparency and fair competition, the FBF recognises that some progress has been made relative to previous draft projects. However, the choices made by the Commission will perpetuate discrimination between order execution systems, giving the advantage to internalising mechanisms. This creates an area of non-transparency.
Under the present proposal, financial intermediaries would be able to execute client orders immediately at the specified limit price without informing other market participants. However, communicating this information is vital to proper price formation on the market.
If the directive were to remain in its present state, there would be two main consequences:
the number of trading venues would increase, thereby fragmenting markets, and large intermediaries, notably those of third countries, would be able to siphon off liquidity via internalising systems or MTFs if they were subject to more benign rules than those applicable to regulated markets;
asset prices would increase, thereby impairing the transparency of the price formation mechanism.
FBF paper
© FBF - French Banking Federation
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