Plus Markets Litigates for the Right to Compete under MiFID
As all eyes focus on the daily turmoil in the financial markets, it would be easy to overlook a small but significant event in the UK. The fledgling small and midcap market, Plus Markets, is taking the London Stock Exchange (LSE) to court citing anti-competitive
behavior with regard to trading securities belonging to the LSE’s Alternative Investment Markets (AIM). It is challenging a LSE rule that requires trades in AIM securities to be reported to the LSE. Ah, an easy one, you would think, as the Markets in Financial
Instruments Directive (MiFID) abolished concentration rules, except that the AIM market has its own set of rules and is not covered under MiFID. While this particular situation is unique, the proceedings are to be watched with interest as they showcase the
leverage of MiFID in the national courts by a rival demanding the right to compete.
Unlike the United States, where federal securities laws and Securities and Exchange Commission rules are minutely detailed, MiFID provides a regulatory framework of policies and there is no common rule book. Primary recourse is at a national level, as each
country has incorporated MiFID into its national laws and therefore leaves room for interpretation. UK law is based on case law, and therefore the outcome here potentially has ramifications for anyone following behind with challenges under MiFID of their own.
The fact that MiFID is both a European directive and national law (leaving Spain out of the conversation for a moment) will not prevent exchanges from trying to protect market share by any means possible. There is a lot at stake as the dominant position
of exchanges is challenged by new rivals on every front. Plus Markets is a case in point, implementing a multi-pronged strategy. While waiting for HM Treasury to pursue the liberalisation of trading in AIM securities, it has teamed with the Munich Exchange,
which has the right to trade on any market. Not to mention Plus Markets’ proceedings in the High Court against the LSE.
Competition among execution venues does not only impact the investment community. For small and midcap companies, one of the investment criteria that is taken into consideration by fund managers is the cost of investment. The inability to execute a block
of stock without negatively impacting the price therefore affects the investment decision. For less liquid companies in particular, this argues in favour of increasing the ability to reduce market impact through alternative execution methods such as dark pools
and block trading functions. The basic question is whether the right to compete outweighs other considerations. Just as the regulatory regimes across Europe have facilitated monopolistic practices in the past, it is now their responsibility to facilitate
competition and for the courts to enforce it when the occasion arises.