Europe’s current Post-Trade Transparency (PTT) regime does not mandate traders to report transactions conducted within a broker’s internal systematic internaliser (SI) in relation to a synthetic instrument. The FIA European Principal Traders Association (FIA EPTA) suggests in a recent paper that this reporting gap in the PTT regime, governed by the Markets in Financial Instrument Directive (MiFID), contributes to the negative perception surrounding declining share trading volumes in Europe.

The reporting gap primarily concerns hedging activities using synthetic instruments. Trades executed through regulated markets, multilateral trading facilities, external SIs, or other forms of over-the-counter (OTC) trading are reported under the PTT regime. Trades executed via internal SIs are not, resulting in a transparency gap.

FIA EPTA suggests that including these unreported volumes in the MiFID II post-trade transparency framework would provide a more accurate and positive portrayal of European equity volumes. It proposes amending the PTT to ensure that trades executed internally by a broker using its own inventory are reported as if they were taking place on an external SI or trading venue.

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Falling behind

The association emphasises that without reporting this segment of trading, investors lack a comprehensive understanding of the European market, leading to incomplete conclusions about the necessary market structure. FIA EPTA underscores the urgency for regulators in Europe and the UK to implement a consolidated tape for shares and ETFs to provide clarity on the “full scope of trading”. Failure to do so, it warns, could risk Europe falling behind.