Fragmentation in European equity markets has had little impact on price formation, but transparency and trade reporting have suffered under the Markets in Financial Instruments Directive (MiFID), according to a study conducted by investment body the CFA Institute.
The CFA syas it finds "no empirical evidence" to suggest market fragmentation has had any material impact on the quality of the price formation process for equities traded under the MiFID regime.
Instead, the CFA says a poll of 962 investor members finds concerns centring on the difficulty in obtaining a complete and clear picture of market prices.
Seventy percent of survey respondents conclude that dark pools are problematic for price discovery, while 68% agree that market fragmentation has created difficulties in trade reporting obligations.
The CFA says the results support calls for the creation of a consolidated tape for quote and trade data for European equity markets.
Rhodri Preece, CFA, director, capital markets policy at the CFA, says: "Our study suggests that...fair and complete access to market prices remains a concern. It also highlights the difficulties in post-trade reporting in the fragmented marketplace. If these concerns are not addressed it could ultimately disadvantage large numbers of end-investors within the EU and conflict with the objectives of a fair and efficient market".
Charles Cronin, CFA, head of the CFA Institute Centre for Europe, Middle East, and Africa (EMEA), says the study is timely, with the MiFID review scheduled for early next year.
"A consolidated system or tape for pricing information would not only improve the quality of data for all stakeholders but also provide a level playing field for participants and help to facilitate best execution," he says.
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