WHEN THE MARKET began worrying about the EU’s Markets in Financial Instruments Directive a couple of years ago, many feared that when they woke up on the morning of November 1 2007 the sky would be a different colour. As the deadline approached, however, the ambitious legislation, which has been billed as the most significant change in the structure of a financial system, began to look a lot less scary. The predictions of nightmare IT bills now look a bit silly and no one now expected a meltdown of any kind on day one. Although the market expects change to come about gradually, rather than overnight, the changes expected are no less profound, especially for the cash equity market, where Mifid’s encouragement of competition between trading venues has already sparked a wave of innovation.
Mifid encourages competition between trading venues directly by abolishing the special status of incumbent exchanges’ prices and the concentration rules that in some European markets forced trading to take place on a particular exchange, levelling the playing field for multilateral trading facilities and other alternative trading venues, such as dark pools, to compete.