MiFID, Reg NMS and Competition Across Trading Venues in Europe and United States

Abstract

This paper examines the differences between MiFID and Reg NMS and provides, based on market microstructure principles, insights as to their likely impact on European and US securities markets. Although MiFID and Reg NMS share the common objective of enhancing competition in securities markets, they adopt different provisions with respect to three issues that strongly influence the competition for order flow among trading venues. Specifically, some of the provisions set forth by the US regulation with respect to the best execution duty, the consolidation of market data and the disclosure of execution quality information appear to be more effective, compared to the EU ones, in strengthening competition for order flow among trading venues. The paper also provides an investigation of the degree of market fragmentation among incumbent exchanges and new trading venues in European and US securities markets, and suggests possible explanations for understanding the current macrostructure of such markets.