Competition in equities trading has certainly increased, but there are issues related to pre- and post- trade transparency and ensuring a level playing field between marketplaces that may have to be addressed, suggests the Committee of European Securities Regulators’ assessment of the impact of the regional regulatory reform, known as the Markets in Financial Instruments Directive (MiFID).

The CESR said that its assessment showed that the introduction of MiFID significantly changed the secondary markets landscape across Europe, most importantly through the introduction of new trading platforms. The share for regulated markets has decreased since the implementation of MiFID, it noted, but the vast majority of equity trading is still transacted through the existing regulated markets rather than on the new entrants or over-the-counter.

It found that increased competition between trading venues resulted in downward pressures on direct execution costs. However, it also noted that higher technology spending to trade in a more fragmented environment and a widening of bid-offer spreads amid volatile market conditions, have tended to offset the reduction in trading fees. Some market participants also worry that fee reductions by trading platforms have not been passed on entirely by trading participants to investors.

The report notes that after the implementation of MiFID, market participants expressed concerns over a number of pre-trade transparency issues ranging from interpretation issues, to potentially undesirable impacts on innovation and an unlevel playing field between various trade execution venues. The CESR says it is taking steps to address these concerns, and that it will study issues such as market data fragmentation, the cost of accessing post-trade data, and the consolidation of data.

“Despite the difficult market conditions of the past 19 months, MiFID has created a new dynamism and increased competition into equity secondary markets,” observed Jean-Paul Servais, chair of the Belgian Commission Bancaire, Financière et des Assurances, and chair of the CESR MiFID Level 3 Expert Group.

“The changes will certainly continue, and CESR stands ready to further analyze these changes and find solutions to any challenges arising,” he added.

Servais also cautioned against jumping to premature conclusions on the effects of the reform, which has taken effect during unprecedented market conditions. “When considering the impact of MiFID, it is important to bear in mind that other factors have had a significant impact on equity trading, including unprecedented market volatility and the defaults of major counterparties. In addition, many of the changes are still working their way through the system and it may be premature to draw more than provisional conclusions at this stage,” he said. “Nonetheless, it is possible to identify trends in the market and areas where further work may be required.”

The CESR notes that it has already started preparing a similar report on MiFID’s impact on non-equity markets, which is expected to be finalized during the first quarter of 2010.