There is little doubt that the Markets in Financial Instruments Directive (MiFID) will have a big impact on trading in the European Union. With its establishment of linkages among markets and the mandate for providing best execution, MiFID's goal is to make Europe a united stock market by posting best quotes across borders. But it also is likely to provide a catalyst for increased fragmentation as well as an added push for algorithmic trading in Europe.
The new requirements are likely to cause alternative trading systems (ATSs) such as electronic communication networks (ECNs) to emerge in Europe. The exchanges will be forced to respond to retain order flow.
While Jackie Chung, president of Competitive Metrics, a Toronto-based consultancy, believes that MiFID ultimately will cause fragmentation in the markets, she cites different reasons. Although exchanges are supposed to work together under MiFID, Chung says, she believes there is a cultural factor that people are overlooking. In fact, she says, "Because of the existence of national identities, it may be quite hard for some of these nations to work together, such as France, England and Germany, which have all had long, historical rivalries."
Chung adds that this distraction could cause others to develop new ATSs. This, in turn, could stimulate an interest in algorithms as well, she notes. However, exactly when - and how - this all will happen is an "uncertainty," Chung stresses.
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