MarketAxess Comments on MiFID II and MiFIR

11 November 2011

MarketAxess Holdings Inc. (Nasdaq: MKTX), the operator of a leading electronic trading platform for U.S. and European high-grade corporate bonds, emerging markets bonds and other types of fixed-income securities, comments on the European Commission’s Markets in Financial Instruments Directive and Regulation (MiFID II and MiFIR).

The MiFID II and MiFIR proposals were published on October 20, 2011 and will now be reviewed by the European Parliament and Council. MarketAxess’ comments and concerns regarding the proposals are summarized below.


Pre-trade Transparency

Pre-trade transparency requirements must be commensurate with the characteristics of each asset class under regulation.


• An overly prescriptive regime requiring publication of pre-trade data in a continuous manner would not provide meaningful additional price discovery.

• Pre-trade transparency requirements should be tailored to the liquidity of individual instruments.

• There are 23,000 ‘tradable’ European corporate bond instruments on MarketAxess.

• The number of individual stocks listed on the largest European stock exchanges is only: 2613 (LSE), 1000 (Euronext) and 6800 (Frankfurt).

• Corporate bonds trade much less frequently than other asset classes, such as equities:

*Source: FINRA TRACE

• MarketAxess Click-to-Trade (CTT) trading protocol today provides live, executable markets for a broad range of corporate bonds and CDS.

• Extensive pre-trade pricing data is available from MarketAxess Bondticker™.


Consolidated Tape

A consolidated tape operated by one or more commercial entities must be appropriately monitored and regulated in order to ensure data is available on a non-discriminatory basis.


• MarketAxess supports the introduction of a consolidated tape to increase post-trade transparency.

• A mechanism needs to be included that prevents trades that might have market impact from being immediately disseminated with full trade details. (e.g., FINRA’s TRACE does not report size for high-grade corporate bonds over $5 million)

• In less liquid markets, timely post-trade data is the foundation for price transparency.

• Inherent conflicts of interest exist where consolidated tape providers are market makers or operate a trading venue.


Market Structure

Divergent market structures standards for derivatives trading between Europe and the US would create opportunities for regulatory arbitrage.


• Clarification is required on the likely differences between MTFs and OTFs in Europe, and SEFs in U.S. under Dodd-Frank.

• Clarification is required on the likelihood of voice brokerage being included under the OTF definition.

• We believe that investors obtain a better price of execution when multiple dealers are put in competition.

• MarketAxess data shows that in US high grade bonds, for every additional dealer response to an inquiry, the marginal cost saving is 0.3 basis points in yield.


Trading Protocolsv

Regulation of trading venues should allow for investor choice in trading protocols.


• In less liquid markets, request-for-quote (RFQ) provides the most competitive pricing.

• The majority of the CDS market today is not large or liquid enough to support central limit order book trading.

• Platforms like MarketAxess are today offering continuous, streaming markets for the most liquid CDS indices.


CDS Market Data

Even the most liquid iTraxx CDS indices trade, at their most active, fewer than 700 contracts per day, globally.

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