Linkages

US Rules

The final crucial component to ensure that investors receive the best possible price is effective linkages between markets. The principal rationale for linking diverse markets is to achieve price equilibrium. An identical security may be trading at different prices on different markets. The question is: why should not the customer get the best available price. For example, “If quote prices are changing rapidly, often the market where the broker routes an order no longer offers the best price by the time that order arrives. Intermarket linkages help ensure that the order sill gets the best price at the point of sale.” (Arthur Levitt, supra at 517) The US approach primarily has left the development of linking markets to the private sector, though the SEC is active in promoting tighter connections among markets and relying upon market innovations in technological progress.

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MiFID Rules

MiFID accomplishes the goal of intermarket connections by means of enhancing the ability of investment firms to use the European single passport to conduct business throughout the European Union. This goal is accomplished by increased harmonisation of national supervisory rules, recognition of MTFs as investment firms able to acquire and use the single passport, and a requirement placed upon clearing and settlement facilities to permit access to authorised firms. Equally critical to financial market integration is the removal of the “concentration rule” found in the repealed Investment Services Directive. The cross-border activity of market venues defined broadly as investment firms, regulated markets, “systematic internalisers”, or MTFs is the method used to enhance market liquidity and to create conditions to establish connections among markets to serve investor interests.

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