Scanning the European regulatory horizon: MiFID II review, market structure, and the ESMA consolidated tape
Key Takeaways
- EU regulators continue to develop detailed rule changes in 2025.
- UK FCA post-trade transparency changes apply from 01 December 2025, in preparation for the bond consolidated tape.
- Regulation continues to impact market structure and liquidity, presenting both challenges and opportunities.
- In Europe, debate continues about the benefits and potential use cases of the equity consolidated tape.
At ION Markets, we are constantly scanning the regulatory horizon to support our customers in keeping abreast of the latest developments.
Earlier this year, we welcomed clients to our London office for a Fidessa Regulation for Breakfast event. We enjoyed a wide-ranging discussion on the current developments in the European Union (EU) and United Kingdom (UK).
As well as discussing the latest EU MiFID II final reports, we were delighted to host Tony Shaw from SIX Exchanges, who shared his insights on the impact of regulation on market structure. No agenda would be complete without the developments around the consolidated tape, and it was interesting to take the temperature in the room as to perceived benefits and potential use cases.
In this blog, I share some of the discussion points and the challenges and opportunities firms are facing.
The world is changing daily. The regulatory focus in 2025 is very much on economic growth and improving efficiencies in rulemaking. Does this mean there’s potential for a row back on regulation and a “bonfire of red tape”? Unlikely. Regulatory change in Europe is typically slow, with proposals, consultations, and decisions taking years. No sudden turnaround is expected, and the MiFID II revisions already in motion are unlikely to be halted.
With growth as the focus, concerns have been raised about the incremental nature of the various adjustments to the regulation rulebooks in both jurisdictions and the ongoing cost of compliance to the industry.
Latest developments in MiFID II
MiFID II continues to evolve with a series of revisions and consultations aimed at refining and enhancing the framework. A key focus remains the establishment of a consolidated tape. This is the backdrop to the ongoing impactful changes.
So far this year, we’ve seen the EU-designated publishing entity regime (DPE) introduced in February. This is similar to the UK’s designated reporter regime (DR) introduced last year. Both new regimes aim to establish simpler and clearer rules for the reporting of OTC trades and help firms understand who holds the obligation of ensuring that a trade is published.
The previous MiFID regime created operational complexity. Firms had to determine trade-by-trade whether they were required to report an off-exchange trade, depending on whether they were an SI in that instrument.
An unintended consequence of the previous regime was that firms wanting to offer trade reporting services to their buy-side clients were forced to opt in as SIs, taking on costly pre-trade transparency obligations. As a result, SI liquidity was seen as potentially inflated due to reported SI volumes. With the advent of DR and DPE, the number of registered SIs could fall.
What’s coming up next in the EU?
The EU MiFID II Review comprises a new directive and regulation amending EU MiFID II and MiFIR.
The amendments aim to enhance data transparency, remove obstacles to the emergence of consolidated tapes, optimize the trading obligations, and prohibit receiving payment for order flow.
The amendments came into force on 28 March 2024 and will apply from 29 September 2025. However, the MiFIR/MiFID II revisions rely mostly on updates to relevant delegated acts and regulatory technical standards (RTS). Existing rules remain in place until those texts are finalized.
Following a big year of consultation, in December 2024 ESMA published several anticipated Final Reports (FR) as part of the MiFIR Review.
Among the interesting takeaways from ESMA’s revised RTS are changes to RTS 1 for SI minimum quote size. The final report on RTS 1 includes a new article 11b regarding SI minimum quote size. Currently, the minimum SI quote size is 10 percent of standard market size (SMS). The new minimum will be equal to the SMS.
The revised RTS 1 has been with the European Commission (EC) since 16 December. This means the changes could apply almost immediately, subject to EC adoption.
The draft RTS 1 also includes increasingly prescriptive details around the publication of pre-trade data. This is in preparation for the EU equities consolidated tape. The possible application date is 01 June 2026.
ESMA’s RTS 2 changes focus on tidying up the remaining aspects of non-equity transparency. No application date has been proposed, aside from it being ahead of the bond consolidated tape.
As part of the MiFID II Review, a single volume cap (SVC) will replace the double volume cap (DVC) . This will be applicable to the reference price waiver only. The proposals remove the trading venue-specific threshold and lower the threshold for total trading volume in the EU from 8 percent for the DVC to 7 percent for the SVC. Negotiated trades will no longer be subject to a volume cap.
ESMA published a draft revised RTS 3 on 10 April 2025. There will undoubtedly be more to discuss on this topic soon.
Transaction reporting: Watch this space
Another notable ESMA consultation on transaction reporting (RTS 22) was published at the end of 2024. The proposals include changes to the fields to be reported:
- Adding effective date; designation of the entity subject to the reporting obligation and a new transaction identification code
- Removing waivers and the short-selling flag.
Where the final draft RTS 22 text lands could result in significant changes to the EU transaction reporting regime.
The UK is also looking at transaction reporting. The FCA is at an earlier stage in the process, having issued a discussion paper on improving the UK transaction reporting regime in November 2024. Open for comments until mid-February 2025, the paper set out to form the regulator’s consultative position on the development of a new transaction reporting regime.
Meanwhile, the UK has been proactive in reviewing and updating its regulatory standards. At the end of 2024, the FCA published its policy statement PS24/14 on non-equity transparency. Application is from 01 December 2025, ahead of a UK bond consolidated tape.
As well as discussing the continuing development of MiFID II, we were delighted to welcome our guest speaker, who shared insights from the market on the impact of regulation.
This segment of the event examined how regulation continues to impact market structure and liquidity. The main views from the market that resonated with our audience centered on the continuing shift of volume away from lit markets and the potential impact on price discovery. Banks and proprietary trading firms are providing bilateral liquidity. The latter are the recent drivers of the trend, with the banks following in a more systematic fashion than past central risk books.
Fragmentation of liquidity is the number one buy-side concern. OTC remains particularly hard to understand, and execution policies are complicated. Some include up to 200 execution venues.
Bilateral trading is certainly a growing concern for venues. It will be interesting to see how the trading landscape evolves.
On the plus side, this shift away from lit markets is seen as a driver of innovation and competition, particularly around market auctions. Overall trading volumes are also recovering after a tough couple of years, and IPOs are expected to start to come through.
In other news, from May 2025, European venues can again start trading and listing Swiss shares, and dual listings of Swiss companies will be possible.
Also, there is a major focus in Spain on reducing clearing fees. A significant recent change in Spain is that a beneficial owner is no longer required on trades. This should reduce post-trade costs.
Status of the consolidated tape for equities
After 15 years, discussion and debate around creating a consolidated tape for equities are as energized as ever. ESMA is pushing ahead with its plans for selecting an equity tape provider and promises authorization in the first half of 2026. The FCA is moving ahead in 2025, working with the industry to finalize the potential design features of a UK equities tape.
Back in 2010 at the start of its journey, the tape was all about post-trade data. Now the EU tape has pre-trade and regulatory data. The tape is being heralded as the solution to provide full transparency and reduce the cost of market data. However, with all the vested interests in the equities world, will the tape deliver on those aims?
In practice, post-trade data quality has been a focus for MiFID II, with incremental changes introduced over recent years. Alongside regulation to improve the quality of post-trade data, the industry came together in 2010 to develop the Market Model Typology (MMT). MMT introduced standard codes for post-trade data, making it easier to compare and consolidate. ESMA’s final report related to CTPs includes the introduction of more prescriptive pre-trade data to align with input and output required by the tape provider.
Meanwhile in the UK, the FCA is forging its own path. For now, the FCA has been assessing whether a post-trade data only tape is sufficient. The jury is still out on the potential for including pre-trade data.
Is this consolidated tape ever going to happen? Progress is being made. Although the tape debate has become politicized, the regulatory initiative has never made it this far before.
Investors lack confidence when they can’t see liquidity to unwind positions. In general, the tape is expected to help simplify market data visibility and depict liquidity. But whether it can help with market data costs is yet to be seen. Meanwhile, there seems to be no great understanding of demand or the actual use cases, and no long queue forming to bid to provide the tape.
Market participants are following the progress. It will be interesting to see how they respond when it becomes a reality, though this is still some way off.
And to close …
The ongoing revisions and consultations around MiFID II highlight the dynamic nature of the regulatory environment. Firms must stay up to date with all these developments to ensure compliance and grasp the opportunities.
Market participants must also stay alert to disparate UK and EU requirements and timelines. The journey towards an affordable consolidated tape and greater trade transparency remains a central theme in these regulatory efforts.
Thank you to all who attended and joined the conversation! ION is committed to managing the impact of regulation on our customers, and we hope to see you at our next event to continue the conversation.
Don't miss out
Subscribe to our blog to stay up to date on industry trends and technology innovations.