The relationship between best execution and market transparency deserves careful consideration in an analysis of MiFID. Best execution has mainly been studied with respect to equity trading, which is generally exchange based and widely regulated also with respect to market transparency. In this chapter, however, I focus on bond trading, which takes place predominantly over-the-counter (OTC) and is not subject to MiFID's transparency provisions. After introducing the topic (Section I), I offer a critical view of the transparency requirements applicable to equity trades and their formation (Section II). I then examine the recent policy discussion on non-equities market transparency, as reflected in the Report issued by the European Commission under Article 65 (1) of the MiFID, examining whether the requirements for pre-trade and post-trade information should be extended to non-equities markets (Section III). I finally consider the role of best execution in bond markets, focussing on the impact of transparency on order execution for retail investors (Section IV). In Section V, I draw some conclusions.

Introduction

A few introductory remarks may help to set this study in context. First of all, the type of instrument traded and the structure of the relevant market have an impact on best execution, as also recognized by the MiFID and its implementing Directive. Shares, to start with, are generally traded in order-driven and centralized markets, such as stock exchanges (and, to a lesser extent, MTFs). Only a fraction of listed shares are traded frequently, mainly in small sizes.