Equity markets are where investors meet to buy and sell shares in a company. These markets lie at the heart of modern economies. Strong equity markets can unlock investment and channel it to firms that need to expand and create jobs. They provide households with better options to meet their retirement goals, and they better connect financing to investment projects.

The past decade has witnessed a fundamental change in the market for equity trading in Europe due to technological development and entry by new players, supported by regulatory changes.

Historically, only one or possibly two exchanges offered trading in a given stock. In 2007, the introduction of the European Markets in Financial Instruments Directive (MiFID I) opened up competition for equity trading, delivering more choice and lower trading costs for European businesses.

In addition to the changes brought about by MiFID I, there have been other important changes in European equity trading. In particular, the ten years that followed were associated with significant growth in algorithmic and high-frequency trading (HFT) strategies, as well as a steep rise in dark trading, such as trading on dark venues and over the counter (OTC), without pre-trade transparency.

Since 2018, the implementation of successor legislation (MiFID II) has continued the trend of promoting competition for equity trading, with a focus on improving transparency and price formation in financial markets. New rules were put in place to limit the amount of dark trading, and to promote trading on the more transparent exchanges, which lie at the heart of the price formation process in equity markets.

There is an ongoing debate about the provision by stock exchanges of market data services. This debate often overlooks the links between market data services, trading and price formation, and the design of the equity trading market more generally.

One year on from the implementation of MiFID II, the objective of this report is to inform the debate on the design of equity trading markets in Europe—in particular, market data services—by providing an economic analysis of:

• the role of the price formation process;
• the impact of regulatory change on the market design of equity trading and price formation;
• the value chain for market data services;
• the impact of different charging structures for market data