European Market Quality Pre-/Post-MiFID: A Panel Discussion of Metrics for Market Integrity and Efficiency

Abstract

Academics and practitioners discuss the state of capital market integration in Europe, specifically several metrics of market efficiency and market integrity pre- and post-MiFID (the Markets in Financial Instruments Directive). Security market integrity is measurable, and higher integrity lowers spreads and price impact, improving market efficiency. European spreads were among the lowest in the world well before MiFID. After MiFID, market manipulation dislocating the close fell in London but rose in Paris. Cumulative abnormal profit from trading ahead of price-sensitive announcements as a percentage of turnover remains half as great in Paris as in London. Trading on Chi-X ahead of price-sensitive announcements is lower than average for Europe, which on this metric has the highest integrity on a regional basis worldwide. Xetra exhibits the highest overall market integrity among all European exchanges and MTFs, pre- and post-MiFID. Price discovery efficiency in London and Paris has declined with the fragmentation of order flow post-MiFID.