A number of changes to European trading rules are necessary to ensure money managers can maximize best execution and to enhance pre- and post-trade transparency, ICI Global said.
The international arm of trade association Investment Company Institute, which represents regulated funds, outlined a number of recommendations in its response to the European Commission's review of the Markets in Financial Instruments Directive II. The rules, which came into force in January 2018, aim to promote transparency and best execution in trading for end investors.
Among its recommendations, ICI Global said a consolidated tape — an electronic system that brings together information on sales volumes and prices from different sources, such as stock exchanges — should be established, "with fair pricing, high data quality, timely coverage and delivery and appropriate governance." Implementation of such a system would enhance market transparency and be to the benefit of investors.
Access to "suitable and appropriate investment funds" should be improved, by simplifying and revising governance obligations and removing complexity, ICI Global said.
Further, standardization and granular data disclosure would help create greater consistency and easier comparisons among best execution reports, enhancing best execution reporting for investors, ICI Global said.
One change under MiFID II was to separate the costs of trade execution and research payments, known as unbundling. One of the proposals by the European Commission in its consultation is to increase the production of research covering small and medium enterprises by reinstating bundling for these stocks, tackling concerns that this area of coverage has declined since the enforcement of the rules.
"Our members' overall assessment of the effect of unbundling on the quantity, quality and pricing of research varies," ICI Global said. "Nevertheless, members believe that the proposals put forward by the European Commission to increase the production of SME research would have limited, if any, impact on the production of good quality SME research and caution against taking action that may have unintended impacts."
Although the introduction of MiFID II has spurred innovation and enhanced competition across parts of trading and market structure, "European policymakers should take an ambitious approach in improving MiFID to further develop European capital markets and foster a lasting economic recovery from the pandemic," said Patrice Berge-Vincent, ICI Global managing director, in a statement.
"Most importantly, EU policymakers should seize the moment by bringing investor communications into the modern, digital age. Investor communications should default to electronic delivery, with the few investors who prefer paper maintaining a right to request it. This simple change would align with the global trend toward digital financial communication, and would better reflect the agenda of today's modern, sustainable, digital Europe," Mr. Berge-Vincent said.