With the review of the MIFID II/MIFIR framework, policy-makers and supervisors are particularly concerned by the lack of accessibility and readability of market data and by a perceived unlevel playing field between multilateral trading facility operators and investment firms operating as systematic internalisers. One view often offered is that the means of achieving consistency in the data submitted by trading venues and investment firms is alignment of the bond and derivatives markets to the equity pre- and post-trade transparency regimes. This push towards alignment of regimes is known as ‘Regulatory Equitisation’.
This regulatory equitisation of the derivatives business raises many questions as some key concepts at the heart of equity markets are not appropriate for derivatives markets. The predominant risk is that the transparency framework that is under review would not take into account the specifics of derivatives instruments and market structure and would adversely affect both liquidity provision and the efficient functioning of these markets.
This paper highlights some of the key differences between equity markets and derivatives markets and explains how and where equitisation of regulation of derivatives markets would lead to negative consequences for users of derivatives.