Commission Vice President Dombrovskis has responded to concerns raised by MEPs on the European Parliament’s Economic and Monetary Affairs (ECON) Committee and the European Securities and Markets Authority (ESMA) regarding systematic internalisers (SIs) operating broker crossing networks. Following calls from the legislators and supervisors in December 2016 and February 2017, respectively, the Commission conducted a preliminary investigation into the matter and has consulted both the exchanges – from which the complaint originated – and investment firms.

The market operators assert that the establishment of the network in which SIs and high-frequency trading (HFT) can interact and the manner of interaction amounts to the creation and operation of a multilateral trading facility (MTF). Investment firms challenge this assertion on the basis that each SI participant does not cease to trade on own account and the communication between participants is bilateral with no central matching of orders. Instead, they liken the communication between participants to back-to-back execution of their client orders. However, the market operators remain sceptical and believe that the speed of the communication allows the network participants to rapidly consult each other in quick succession and therefore calls into question its bilateral nature.

The Commission has taken the market operators’ concerns on board and will now engage with ESMA and the competent national regulators to determine in which jurisdictions this practice could potentially take place. It will then work with the relevant NCAs to determine how to address such networks within the scope of MIFID 2.


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