To safeguard crypto trading and liquidity, EU regulators increase MiCA oversight of pooled order books.
The European regulators have been working on the pooled order books to enhance oversight under the Markets in Crypto Assets (MiCA) framework.
The European Securities and Markets Authority (ESMA) is expected to consolidate control and introduce more explicit regulations with respect to pooling order books in the EU.
This is in response to the demands of national regulators, including France AMF, Austria FMA, and Italy Consob, who demand a tighter regulation of the order books in order to maintain trading within the EU jurisdiction.
The AMF stressed that crypto trading operations and executions related to local order books should be effectively monitored within the Union and specified in the legislative text of MiCA.
Liquidity Risks and Market Impact Spark Concern
Sharing order books offers the advantage of combining buy and sell orders across broader markets, enhancing liquidity and reducing spreads.
Regulators, however, fear that by combining order books with non-EU platforms, EU investors will be subject to unregulated risks and ambiguous responsibility in execution.
According to the legal advice of Norton Rose, the decision to restrict liquidity pools to EU-only venues will first of all disaggregate liquidity and increase bid-ask spreads, which will influence the margin of price-accuracy and trading costs.
These changes would bring trade activity to a more concentrated point in the EU, but would need a market adjustment.
Under MiCA enforcement, ESMA has made it clear that EU-approved crypto asset service providers are forbidden to co-locate order books with non-EU, non-MiCA-regulated platforms.
This action aims at regulatory arbitrage, as well as ensuring that all parties operating order books are MiCA-authorized.
Calls for Clarity and Unified Application of MiCA
The demand for a common strategy is due to the lack of unity in licensing policies amongst member states, which threatens the lack of uniform supervision.
In a second call issued by France, Austria, and Italy, ESMA is called to incorporate clear rules in the MiCA Level 1 text to get rid of the uncertainties regarding what is considered to be a genuine EU-based crypto trading infrastructure.
Regulators affirm the need to have legal certainty and appropriate management to have a level playing field, regardless of order routing and liquidity sharing, despite the current discussions.
The post Market News: Pooled Order Books Under Scrutiny in EU MiCA Shakeup appeared first on Live Bitcoin News.