The second iteration of the Markets in Financial Instruments Directive which comes into force on 1 January 2018 will see the introduction of consolidated tape providers (CTPs) across all European exchanges for the first time.
The European Securities and Markets Authority (ESMA) has stated that CTPs will collect post-trade information published by trading venues and approved publication arrangements (APAs) and will consolidate them into a continuous live data stream and make the data available to the public, both for equity and non-equity products.
"It brings more transparency and liquidity," Michael Stanley from the LSE told the audience at the Inside ETFs conference in London yesterday. "All the trades in Europe will go on the consolidated tape."
One of the intentions of the European authorities with Mifid II is to push for more ETF trades to take place on exchanges as opposed to OTC trading. By some estimates, between 50-70% of all ETF trades takes place OTC but Brussels has mandated that it wants to see improvments in the quality of transaction data for over-the-counter markets in an effort to shine some light on traditionally opaque trading.
Speaking alongside Stanley on the panel, Rhodri Preece, head of capital markets policy for the EMEA regions at the CFA Institute, said: "What will be interesting will be to see whether more trading actually does take place on the exchanges. That is one of the regulator's objectives."
The further enhancement of transparency will also have an effect on other aspects of the market, Stanley added. "I think we will see more securities lending - I believe people will be happier with accepting ETFs as collateral."
He pointed out that for institutions who were seeking further yield, securities lending could be effective. In general, securities lending - that is, lending out the underlying shares in an ETF - will translate into tighter index tracking and a small improvement in overall returns.
Preece said that another impact from Mifid II would be that potentially the cost of equity trading will fall as the cost of research charges is taken out of the bundled services charge.
"By stripping out research charges from execution commission, it means the cost of trading equities might come down."