FESE welcomes the opportunity to respond to the UK Wholesale Markets Review consultation. Open, competitive, and fair wholesale markets are a prerequisite for efficient capital markets.
We support some of the UK Treasury’s reflections on maintaining high standards, addressing failures in market structure and market data, and embracing technological changes. We would suggest, however, broadening the scope of such reflections and giving prominence to transparency and price formation.
The balance between dark trading (for example on SI, OTC, and on-venue trading under waivers from pre-trade transparency) and transparent trading should be framed appropriately by regulation. Dark venues may serve as useful execution venues at times. However, they are potentially harmful to the quality of trading and the price formation process as trading in dark venues limits the information available for price formation and fragments the order flow. A balance must be struck which preserves and strengthens transparency and the price formation process and acknowledges the role of dark trading. In this document, FESE outlines its views on the major aspects delineated in the UK Treasury consultation. Ultimately, we believe that a well-functioning price formation process is key to the stability and resilience of capital markets and has a positive impact on the cost of capital for the broader economy.