Mifid II could require ETF trade reporting

The second installment of the Markets in Financial Instruments Directive (Mifid) could require ETF trades to be reported on exchange, which would boost market liquidity according to industry players.

Global ETF Advisors principal Richard Keary says that reporting trades will undoubtedly enhance the liquidity of the European ETF market. He adds: "As soon as there's transparency around pricing and trading, more people are willing to trade."

Mifid II is currently being discussed and although it could be a couple of years before it is implemented, certain groups are lobbying for the reporting of ETF trades. Barclays Global Investors global head of ETF research Deborah Fuhr says: "There is a move from some people who say it would be very useful if ETF trades, like normal trades of stocks, were required to be reported."

At present, some clients ask to have trades reported, while in certain cases people have made requests to the Committee of European Securities Regulators that particular ETFs should be trade reported, says Fuhr.

However, there are some industry players who do not want this requirement stipulated in Mifid II. Keary explains that some banks can make a wider spread between buy and sell orders when ETFs are traded over the counter.

He says: "Once trades go live onto an exchange, the bid-ask spread narrows dramatically, which is better for investors, but cuts down on trading profits."