MiFID II - Impact on Market Quality

MiFID II has been in force for eight months, affecting many significant changes in EU's financial markets. The regulation enforces trade transparency and harmonisation among EU markets and exchanges. This includes major changes relating to reporting and trading rules, including the Double Volume Cap Mechanism and a new Tick Size Regime.
Amidst many studies into each individual change that might affect market trading behaviours, the CMCRC, with its readily available market data on MQD, examines overall change in market quality through several important measures. We direct our focus to the London Stock Exchange's FTSE 100 index, enabling us to emphasise the economic significance of any potential impact.
Presented below is a weighted index of 9 market quality metrics pre and post MiFID II, for 5 trading venues in the UK. Our analysis covers the period from December 1, 2017 to July 31, 2018. To assess the impact during a customised period, just select a new start and end date, or to modify the weights of each metric in the index, simply enter a value other than 100.
Choose the markets to display in the charts below from this menu:
Overall score
This table gives an indication of the change in direction in the score for each market and metric after the implementation of MiFID II on 2018-01-03. All days in the selected date range are used.
  • An increasing arrow indicates an increasing score. A higher score may be associated with increased market share, or a decreased spread, for example.
  • Custom weights can be specified in the text boxes to alter the impact of that metric in the overall score per market and group.

How is the overall score calculated?

The chart below shows the change in overall score over the entire date range.
On-market Trade Count – The daily total on-market trade count for each venue.
On-market Trade Volume – The daily total on-market trading volume for each venue.
On-market Volume Share (%) – The percentage of each trading venue's total on-market trading volume over the consolidated trading volume.
Quoted Spread – The difference between each exchange's bid and ask price over the midpoint of the quote measured in basis points. This metric is value weighted.
Effective Spread – The degree that the actual trade price deviates from the mid-point. It represents the actual, round-trip cost of trading to the liquidity demander.

Realised Spread – The percentage signed difference between trade price and the midpoint in each trading venue after a grace period, which is currently set as 1 minute, measured in basis points.
Intraday Volatility – The intraday mid-point price return volatility.



Variance Ratio – The linearity of variance of mid-point price return in terms of data interval. In an efficient market, the variance of mid-point price return over t minutes is expected to be close to k times the variance of mid-point price return over x minutes, which is equivalent to a variance ratio around 1. We present a 30-second interval.
Quoted Depth – The average time adjusted quoted bid size plus ask size when each lit trading venue is at the national best bid offer (NBBO).

Venue Information Share (%) – The proportion of the variance in the common efficient price innovations that is explained by innovations in that price series. Consists of contemporaneous response to both permanent and transitory shocks.
Venue Common Factor Share (%) – Refers to the proportion of price innovations in competing venue(s) that are driven by transitory shocks.


Venue Information Leadership Share (%) – Measures the relative impact of permanent shocks on the prices series in each venue. A value greater than 0.5 in a venue implies that the price serious in that venue leads the price discovery process after the arrival of new fundamental information.