Best execution and competition between trading venues MiFID s likely impact

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1 404 Capital Markets Law Journal, Vol. 2, No. 4 Best execution and competition between trading venues MiFID s likely impact Guido Ferrarini* Key points Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments ( MiFID ) enhances investor protection in Europe by harmonizing the rules of conduct applicable to investment services providers, including best execution requirements. Under MiFID, Member States must allow internalization of orders and, therefore, eliminate the concentration provisions requiring transactions in equity securities to be executed by intermediaries on a regulated market. This article argues that MiFID s best execution provisions may represent a compromise between those Member States that, on one hand, having concentration rules in place, intended to protect the incumbent exchanges from the consequences of their repeal and those, on the other, that intended to fully exploit the opportunities of financial liberalization in Europe. After examining MiFID s broad definition of best execution, the article considers several provisions that limit the Directive s flexibility. These provisions tend to favour incumbent exchanges, which offer the best prices for the securities listed on them. Indeed, MiFID requires firms to include similar venues in their execution policy and also subordinates off-exchange trades to clients prior consent. Moreover, Commission Directive 2006/73/EC implementing MiFID foresees a total consideration requirement which, though not contemplated at level 1, was advocated throughout the level 2 consultation process by some continental exchanges. This requirement will have an impact on competition between trading venues, to the extent that reference to the traded instruments price will put established and more liquid markets at a competitive advantage. The article further considers the applicability of best execution duties to dealers. Depending on the scope assigned to the relevant rules, dealers will be able to compete with other trading venues under either greater or smaller constraints. The controversy amongst CESR members in this respect is particularly significant for quote-driven markets and may reflect the different weight of these markets on the two sides of the Channel. The article concludes that the possible impact of the new best execution provisions on competition amongst trading venues could see the stock exchanges as winners, contrary to MiFID s original purposes. 1. Introduction In this article, I analyse the likely impact of the best execution provisions included in Directive 2004/39/EC of the European Parliament and of the Council on markets in financial instruments (also known as MiFID ) 1 and in Commission Directive 2006/73/EC of 10 August 2006 implementing MiFID (hereafter the Commission Directive ) 2 * Professor of Capital Markets Law, University of Genoa; Vice Chairman and Fellow, European Corporate Governance Institute, Brussels. 1 OJ 2004, L OJ 2006, L 241. ß The Author (2007). Published by Oxford University Press. All rights reserved. For Permissions, please journals.permissions@oxfordjournals.org doi: /cmlj/kmm026 Advance Access publication 7 September 2007

2 Guido Ferrarini Best execution and competition between trading venues 405 on competition between trading venues. By trading venues I refer to regulated markets, 3 multilateral trading facilities (MTFs) 4 and internalizing firms. 5 The practice of internalization, in its broadest meaning, includes both direct execution of clients orders by investment firms for their own account and agency crosses where customer orders are matched against each other. 6 Under MiFID, Member States must allow internalization of orders and, therefore, eliminate the concentration provisions (which were permitted by the Investment Services Directive) requiring transactions in equity securities to be executed by intermediaries on a regulated market. 7 Until recently, some Member States, such as France, Italy and Spain, maintained concentration rules as requirements for the best execution of transactions by investment intermediaries, whilst others, including the UK, left intermediaries free to execute these transactions offexchange and to internalize the same in compliance with best execution requirements. 8 The MiFID promotes competition between trading venues along the UK model. 9 Moreover, the Directive regulates internalization with provisions concerning transparency, order handling and best execution. F. Recine and I analysed, in a joint paper, the interplay amongst different interest groups in the legislative process that led to the MiFID, arguing that the Directive resulted in substantial re-regulation of securities trading systems. 10 We showed, in particular, how detailed provisions as to client order handling (Article 22 MiFID) and firm quote obligations of systematic internalizers (Article 27) were advocated by those constituencies, such as the incumbent exchanges and small medium-sized investment firms, which were protected by domestic concentration rules and feared the consequences of securities trading liberalization. The provisions at issue were transplanted from the United States without any deep preliminary analysis of their likely impact on European securities markets. Indeed, they appear to have emerged from a political compromise between the UK view, which opposed similar rules as unfit for EU/UK markets, and the French Italian position relying on the US model. In this article, I show that the European best execution provisions may represent a similar compromise between those Member States that, having concentration rules in 3 See Art 4 (1), No. 14), MiFID, for the definition of a regulated market. 4 See Art 4 (1), No. 15), MiFID, for the definition of a multilateral trading facility (MTF). 5 See Art 44 (1) of the Commission Directive defining an execution venue as a regulated market, an MTF, a systematic internaliser, or a market maker or other liquidity provider or an entity that performs a similar function in a third country to the functions performed by any of the foregoing. 6 See R. Davies, A. Dufour and B. Scott-Quinn, The MiFID: Competition in a New European Equity Market Regulatory Structure, in G. Ferrarini and E. Wymeersch (eds) Investor Protection in Europe: Corporate Law Making, the MiFID and Beyond, (2006) Oxford , at 166. The question whether MiFID refers to the broad concept of internalization indicated above is analysed by B. Bréhier, L internalisation des orders: un concept encore flou, (2006), Revue Banque No See G. Ferrarini, The European regulation of stock exchanges: new perspectives, (1999), 36 Comm Mkt L Rev ; N. Moloney, EC Securities Regulation, (2002), Oxford University Press For a better description of the national systems mentioned above, see R. Davies, A. Dufour and B. Scott-Quinn (n 6 above); as to Germany, see J. Köndgen and E. Theissen, Internalisation under the MiFID: Regulatory Overreaching or Landmark in Investor Protection?, G. Ferrarini and E. Wymeersch (n 6 above) For a similar approach in the US, where the SEC followed a policy of promoting competitive markets, see J. Macey and M. O Hara, From Orders to Markets, (2005), 28 Regulation G. Ferrarini and F. Recine, The MiFID and Internalisation, G. Ferrarini and E. Wymeersch (n 6 above)

3 406 Capital Markets Law Journal, 2007, Vol. 2, No. 4 place, intended to protect the incumbent exchanges from some of the consequences of the MiFID s revolution, 11 and other States, like the UK, that intended to fully exploit the opportunities of financial liberalization in Europe. Moreover, I analyse the likely impact of the MiFID s best execution regime on competition between trading venues, asking whether stock exchanges will be winners or losers under the new rules MiFID s best execution. Why a flexible definition? MiFID enhances investor protection in Europe by harmonizing the rules of conduct applicable to investment services providers, including best execution requirements. 13 Article 21 of MiFID sets out these requirements for investment firms executing client orders concerning financial instruments, whilst Article 45 of the Commission Directive foresees similar duties (under Article 19 of MiFID) for firms carrying out portfolio management and reception and transmission of orders services. Under Article 21 (1), investment firms are required to take all reasonable steps to obtain, when executing orders, the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. 14 This is a best endeavour obligation, which is met by complying with the provisions foreseen in the following paragraphs of Article First, investment firms must establish and implement effective arrangements for complying with the best execution obligation, including an order execution policy that contains information on the different venues where client s orders are executed and the criteria for choosing a venue (paragraphs 2 and 3). Second, investment firms must obtain their clients consent to their execution policy and be able to demonstrate, on a client s request, that they have executed its orders in accordance with this policy (paragraphs 3 and 4). Third, investment firms should monitor the effectiveness of their order execution arrangements and policy, and regularly assess whether the execution venues included in their policy provide for the best possible result (paragraph 4). The MiFID s broad definition of best execution deserves approval, 16 for it is often acknowledged that order execution should be assessed also on the basis of criteria 11 For this concept and an analysis of the same, see J. P. Casey and K. Lanoo, The MiFID Revolution, ECMI Policy Brief No. 3 November For an economic analysis of the perspectives for internalization in Europe, see M. Anolli and G. Petrella, Internalisation in European Equity Markets Following the Adoption of the EU MiFID Directive, (2007), Journal of Trading On rules of conduct in general, see G. Ferrarini, Contract Standards and the Markets in Financial Instruments Directive (MiFID), (2005), 1 European Review of Contract Law The same provision further provides: Nevertheless, whenever there is a specific instruction from the client the investment firm shall execute the order following the specific instruction. In a similar case, the best execution requirements can be set aside by the investment firm, the reason being that the rule in question supplements contract terms, leaving the parties free to regulate order execution differently. However, an investment firm should not induce a client to instruct it to execute an order in a particular way, by expressly indicating or implicitly suggesting the content of the instruction to the client, when the firm ought reasonably to know that an instruction to that effect is likely to prevent it from obtaining the best possible result for that client (recital 68 of the Commission Directive). 15 See AMF consultation on enforcing the best execution principles in MiFID and its implementing Directive (25 July 2006), at 7, speaking of a best efforts obligation. 16 A similar approach was suggested by the Financial Services Authority (FSA), Best Execution, Consultation Paper 154, (October 2002).

4 Guido Ferrarini Best execution and competition between trading venues 407 other than price. 17 Indeed, the best price may not always represent the best possible result, for many reasons. 18 The first are costs, either explicit (such as those for accessing an execution venue) or implicit (ie resulting from how a trade is executed). For example, working a large order patiently may save the costs deriving from this order s market impact and generate the best net price. 19 On the other hand, speed of execution may be important when the costs of an adverse market movement are likely to be great. Likelihood of execution, which depends on the depth of liquidity at a given venue, 20 is also relevant for the best price may be illusory if the execution venue in question is unlikely to complete the order. 21 Furthermore, the nature of an order (market order, limit order, etc.) is relevant as an execution venue may perform better for one type of order rather than for another. 22 In general, the relative importance of best execution factors must be evaluated on the basis of the criteria fixed at level 2, taking into account the nature of the client (retail or professional), the type of order and the characteristics of the relevant financial instruments and execution venue [Article 44 (1) of the Commission Directive]. A flexible concept of best execution makes competition between trading venues easier, to the extent that exchanges, MTFs and internalizing firms can compete both as to price and other aspects of trading. As a result, new execution venues will emerge and offer trading functionalities different from those already provided by exchanges. A narrow definition of best execution, on the contrary, would enhance the market power of incumbent exchanges, which have the greatest pools of liquidity and generally offer narrower spreads. 23 An exception is made by debt securities, which are predominantly traded over-the-counter through broker-dealers. 24 Only if trading of these securities migrated, possibly as a result of MiFID s implementation, from OTC markets to exchanges and/or MTFs, would the latter be included in the investment firms execution policies and their market power enhanced also with respect to bonds. However, a broad definition of best execution may create difficulties in enforcement. It is not easy, for example, to compare the price data with those concerning speed of execution and settlement. The relevant choice depends on client, transaction 17 See J. Macey and M. O Hara, The Law and Economics of Best Execution, (1997), 6 J Financial Intermediation See FSA, Implementing MiFID s Best Execution Requirements, Discussion Paper 06/3 (May 2006), at Ibid, at 16. Market impact (also price impact) occurs when traders move prices to fill their orders. See L. Harris, Trading and Exchanges (2003), New York: Oxford University Press at 72: To attract traders, large impatient traders often must move prices. Large buyers bid prices up to encourage sellers to sell to them. Large sellers offer prices down to encourage buyers to buy from them. 20 Depth refers to the size of a trade that can be arranged at a given cost: see L. Harris (n 19 above) at See FSA (n 18 above), at For example, depending on its bid/ask spread, a market could be good either for limit orders or market orders: see L. Harris (n 19 above) at 297, explaining that when the spread is wide, market order executions are costly and limit order submissions attractive; when the spread is narrow, market order strategies are more attractive. 23 See J. Macey and M. O Hara (n 17 above) arguing that well-meaning attempts to mandate best execution as a consumerprotection device run counter to attempts to make markets less centralised and more competitive and that this difficulty makes best execution both unwieldy and unworkable as a mandated legal duty: pursuing a narrow concept of best execution may make markets less competitive. 24 See, for example, The Bond Market Association and European Primary Dealers Association, European Bond Pricing Sources and Services: Implications for Price Transparency in the European Bond Market, 1 April 2005.

5 408 Capital Markets Law Journal, 2007, Vol. 2, No. 4 and financial instrument type. As a result, discretion is left to courts and regulators, whilst intermediaries may be tempted to exploit legal uncertainties so as to avoid compliance with best execution standards. A similar problem would not occur or would be less serious in the case of a narrow definition of best execution, focusing on price. Indeed, domestic concentration rules, now forbidden by the MiFID, were also a response to the need for effective enforcement. Adoption of similar rules was justified on best execution grounds, as concentration of trades on the same venue ensures best prices to investors, who can easily monitor execution of their orders by intermediaries. 25 The abolition of domestic concentration rules was opposed for similar reasons throughout the MiFID s preparatory works. Euronext, for instance, objected to internalization by arguing that financial conglomerates could not execute orders as efficiently as stock exchanges. Euronext also highlighted the difficulty of verifying that the price at which an order is executed by way of internalization is as good as the price at the stock exchange. 26 Difficulties of enforcement may, on the other hand, explain systems like Xetra Best, the internalization facility of the Frankfurt Stock Exchange, which only allows trades of listed securities to be executed by internalizers (purposely defined as best executors ) if they make a price improvement on the official order book of the Exchange Is MiFID s definition really flexible? Other provisions of the MiFID and the implementing Directive constrain the flexibility of the concept analysed in the previous paragraph by making the best execution requirements more specific. First, the order execution policy (offering information on execution venues and how to choose among them) shall at least include those venues that enable the investment firm to obtain on a consistent basis the best possible result for the execution of client orders [Article 21 (3) MiFID]. It is not enough for investment firms that, for example, internalize execution of orders to refer to the prices made in the exchange where the securities are listed. Their execution policy should also include this exchange (assuming it assures on a consistent basis the best possible result for the firm s clients). Therefore, the investment firm should be ready to trade on the relevant exchange and, in any case, should monitor the prices of internalized trades by periodically comparing the same with those made in the exchange at issue. Second, investment firms should obtain the prior consent (which could also be tacit) 28 of their clients to their execution policy and inform the same about the possibility, when foreseen by this policy, to execute their orders outside a regulated 25 G. Ferrarini, Pan-European Securities Markets: Policy Issues and Regulatory Responses, (2007), 3 European Business Organization Law Review 249, at See Euronext, Internalisation, 12 January This would in any case determine an increase of the regulatory costs involved in the supervision of internalizing firms. 27 See J. Köndgen and E. Theissen (n 8 above) at See CESR, Best execution under MiFID. Questions and Answers (May 2007) at 12, notes that consent to the firm s execution policy may result form the behaviour of the client such as the sending of an order to the firm after having received information on the firm s execution policy.

6 Guido Ferrarini Best execution and competition between trading venues 409 market or MTF. Moreover, investment firms should obtain the prior express consent of their clients before proceeding to execute their orders outside a regulated market or MTF. 29 Similar requirements protect the incumbent exchanges by alerting clients against the risks of off-exchange transactions. At the same time, they underline that exchange markets offer liquidity and price efficiency. In brief, domestic concentration rules are replaced by consent requirements and by the duty to include the best performing exchange in a firm s execution policy. Third, in the case of execution of orders for retail clients, the best execution factors enumerated by Article 21 (1) of the MiFID are incorporated, at level 2, in the narrower criterion of total consideration. Article 44 (3) of the Commission Directive requires, in similar cases, to determine the best possible result in terms of total consideration representing the price of the financial instrument and the costs related to execution, which shall include all expenses incurred by the client which are directly related to execution of the order, including execution venue fees, clearing and settlement fees and any other fees paid to third parties involved in the execution of the order. Reference to total consideration is justified on two counts. First, it is an easy test to apply for retail clients wishing to monitor the quality of order execution by an investment firm. Second, retail orders are generally small and relatively easy to execute. Therefore, getting the best price for an instrument and the lowest costs for trading the same should suffice for best execution purposes. Recital 67 of the Commission Directive specifies that implicit transaction costs (such as those concerning speed, likelihood of execution and settlement, and market impact) may be given precedence over the immediate price and cost factors only insofar as they are instrumental in delivering the best possible result in terms of the total consideration to the retail client. CESR makes the example of a large order in a relatively illiquid share, 30 acknowledging however that implicit costs are unlikely to be a consideration for most retail orders as the majority of these are likely to be average sized orders in liquid instruments. 31 In CESR s opinion, total consideration is also relevant for the assessment of best execution for professional clients, because in practice a firm is unlikely to be acting reasonably if it gives a low relative importance to the net costs of a purchase or the net proceeds of a sale. There may be circumstances, however, where other factors will be more important for professional clients and MiFID clearly allows firms flexibility in this regard See Art 21 (3) specifying that this consent can be obtained either in the form of a general agreement or in respect of individual transactions. See CESR (n 28 above) at 11: this entails an actual demonstration of consent by the client which may be provided by signature in writing or an equivalent means (electronic signature), by a click on a web page or orally by telephone or in person, with appropriate record keeping in each case. 30 CESR (n 28 above) at See CESR, Best execution under MiFID. Public consultation (February 2007) at CESR, (n 28 above) at 8 9.

7 410 Capital Markets Law Journal, 2007, Vol. 2, No Political and economic implications The level 1 wide definition of best execution has been transformed, at levels 2 and 3, into a narrower concept focusing on total consideration in the generality of cases. This is not what CESR had suggested in its draft technical advice on possible implementing measures. After emphasizing that the Commission s mandate did not require it to determine the relative importance of best execution factors, this being a task for investment firms, CESR provided the criteria that firms may use to assess the relative importance of these factors. 33 In the Committee s opinion, the relative importance of the factors in Article 21 (1) will depend on the characteristics of the orders and clients that the firm handles and the venues where those orders can be traded. 34 CESR did not refer to price and costs as the main criteria, contrary to what had been argued by some of the consultation s participants, such as Euronext stating that amongst the different factors to be taken into account for best execution, price and costs are particularly important. 35 Similarly, Borsa Italiana invited CESR to give an indication about which factors are to be taken into account for measuring best execution underlining that net price should be the indicator to consider for retail clients. 36 The Commission rejected CESR s approach and proposed the total consideration criterion for retail clients, implicitly adhering to the Continental view expressed by Euronext and the Italian Exchange. This solution was opposed by several participants in the relevant consultation, including the European Banking Federation, which claimed that the Commission had totally reversed the approach taken by CESR and contradicted the principles of level 1, which establishes no legal basis for the Commission to define the relative importance of the criteria. 37 The solution adopted by the Commission will have an impact on competition between trading venues, to the extent that reference to the traded instruments price will put established and more liquid markets at a competitive advantage. No doubt, total consideration also includes transaction costs and, where there is more than one execution venue, the trading firm s commissions and costs for executing an order on each of the eligible venues shall be taken into account [Article 44 (3) Commission Directive]. However, as suggested by CESR, when selecting venues for its execution policy an investment firm should not take into account the fees and commissions it will charge its clients. Under the two-steps approach envisaged by the MiFID, a firm s execution policy should include those venues likely to provide the best prices on a consistent basis, whilst transaction costs should be taken into account when choosing a venue from those included in the firm s execution policy See CESR, Advice on Possible Implementing Measures of the Directive 2004/39/EC on Markets in Financial Instruments, Consultation Paper (June 2004) at Ibid. 35 See the response of Euronext to CESR Consultation Paper, of 22 September 2004; see also the response of Euronext to CESR s call for evidence, of 29 June 2004, from which I quote above in the text. 36 See Borsa Italiana s response to CESR Consultation Paper, at See the European Banking Federation s response to Working document ESC/23/ See CESR (n 31 above) at 9.

8 Guido Ferrarini Best execution and competition between trading venues 411 The impact on competition of a narrow best execution concept, such as that embodied in the total consideration criterion, is manifest when considering the possibility of including a single execution venue in a firm s policy. As argued by CESR in its consultation document, there may be circumstances in which only one particular execution venue or entity will deliver the best possible result on a consistent basis for some instruments and orders. 39 It may also be that for other instruments or orders there are other potential venues. However, the cost of accessing more than one execution venue directly, to the extent that it would be passed on to clients, may outweigh any price improvement an alternative venue might offer. 40 CESR considered that, in similar circumstances, it may be reasonable to decide not to connect to these other venues; nonetheless, the investment firm should always consider also the advantages of indirect access (ie transmitting its client orders to another execution intermediary rather than executing those orders itself). 41 In its final document CESR, whilst confirming that an investment firm may include a single entity in its policy, adopted a more general stance by asking the same to show that this allows it to satisfy the overarching best execution requirement When is a dealer an agent? Another problem the solution of which may affect competition between trading venues concerns the applicability of best execution duties to dealers. Depending on the scope assigned to the relevant rules, dealers will be able to compete with other trading venues under either greater or smaller constraints. The problem was raised by the FSA in a consultation paper concerning MiFID s implementation, where the argument was advanced that in quote-driven markets the scope of best execution requirements is subject to determining whether a firm is dealing with a client, whether it is executing an order and whether the firm is providing a service or merely carrying on an activity. 43 The FSA announced its intention to implement MiFID on the basis that it does not make sense to require a dealing firm to deliver best execution if the customer is relying on its own due diligence in deciding to buy or sell a financial product from or to a firm. 44 Conversely, if any customer indicates that it is looking for best execution and under MiFID is entitled to obtain it, then the firm will have to provide best execution or decline to deal. 45 This approach was criticized by other CESR members arguing that it is not consistent with MiFID and the implementing Directive, because dealing on quotes meets the criteria of dealing on own account and the latter should be considered as the execution 39 Ibid, at Ibid. 41 Ibid. 42 CESR (n 28 above) at See FSA, Reforming Conduct of Business Regulation, Consultation Paper 06/19 (October 2006) at Ibid. 45 See Working Document ESC , Commission answers to CESR scope issues under MiFID and the implementing directive, 1.

9 412 Capital Markets Law Journal, 2007, Vol. 2, No. 4 of client orders, and therefore subject to MiFID s best execution requirements (see recital 69 of the Commission Directive). 46 The Commission accordingly specified that under MiFID only eligible counterparties may be allowed to enter into transactions without benefiting of best execution protection. Otherwise, an investment firm executing an order provides an investment service to a client, and is therefore subject to best execution. In the Commission s opinion the reason why best execution also applies vis-à-vis professional clients is that the relevant rules, in addition to protecting investors, foster competition between trading venues and overall market efficiency. 47 The controversy amongst CESR members is particularly significant for quote-driven markets. The FSA aimed to protect these markets from excessive regulatory burdens by stressing that dealers act as principals rather than agents. Others objected that dealing on quotes is an investment service subject to best execution requirements. This discussion may reflect the different weight of quote-driven markets on the two sides of the Channel. However, the Commission did not unconditionally accept the Continental view of the matter. No doubt, its response acknowledged that whenever a person or entity enters into a transaction with an investment firm, it will do so in the capacity either of an eligible counterparty, or as a retail or professional client. 48 Yet, the Commission further specified: the key concept to focus on in interpreting Article 21 is the execution of orders on behalf of clients. 49 As also stated in recital 33 of the MiFID, the best execution obligation should apply to the firm which owes contractual or agency obligations to the client. Even though it is not necessary to find an agency relationship for best execution to apply, execution of an order on behalf of a client is required. The following examples of transactions subject to best execution are given, in addition to that of executing an order as a clients agent: (i) executing a client order against the firm s own proprietary position, where the firm is making decisions as to how the order is executed; (ii) executing a client order by dealing as a riskless principal on behalf of the client, ie entering at the same time into a transaction as principal with a counterparty. Situations where, in the Commission s opinion, a firm is not subject to best execution are those in which the client either makes a specific request to buy/sell a financial instrument from/to the investment firm, or accepts an offer made by the firm to the same effect. Even in these circumstances, however, the firm could be seen as acting on behalf of the client: This is a question of fact...which ultimately depends on whether the client legitimately relies on the firm to protect his or her interests Therefore, the Commission s response is not too distant from the FSA s position, except for the fact that the Commission defines as clients also those dealing with a firm without best execution protection. As suggested by the FSA in another paper, dealers in OTC markets who 46 Ibid. 47 Ibid, at Ibid. 49 Ibid, at Ibid, at 4.

10 Guido Ferrarini Best execution and competition between trading venues 413 definitely want to escape best execution obligations can either deal with eligible counterparties or effect transactions on an MTF or a regulated market Conclusions In this article, I have analysed the likely impact of the MiFID s best execution provisions on competition between trading venues in Europe. After examining the Directive s broad definition of best execution, I considered several provisions that either add further requirements or limit the flexibility of the MiFID s concept. These provisions tend to favour incumbent exchanges, which offer the best prices for the securities listed on them. Indeed, MiFID requires firms to include similar venues in their execution policy and also subordinates off-exchange trades to the clients prior consent. Moreover, the Commission Directive foresees a total consideration requirement, which was not contemplated at level 1, while being advocated throughout the level 2 consultation process by some continental exchanges. As a result, the MiFID s possible impact on competition amongst trading venues could see the stock exchanges as winners. There is, no doubt, some irony in this conclusion, considering that one of the Directive s main purposes was to promote competition with concentration provisions being forbidden specifically to allow new trading venues to emerge. Of course, I am not ruling out in principle that competition may be enhanced by the MiFID s implementation in the Member States and that new trading venues, such as MTFs and internalizers, shall be established as a result. Nor I am arguing that the continental exchanges were the only winners in the level 2 and 3 specifications of the best execution principle. As seen in paragraph 5, the interpretation given by the Commission to the dealing on quotes issue is in some measure close to the FSA s position, and therefore favourable to quote-driven markets. However, the best execution provisions, if enforced correctly, are not by themselves likely to enhance the competition between the order-driven regulated markets in the continent and MTFs or internalizing firms. 51 See FSA, Implementing MiFID s Best Execution Requirements, Discussion Paper 06/3 (May 2006) at 23.