The consultation paper, which calls for responses by March 8 2016, covers areas including the expansion of transparency requirements to equity-like and non-equity markets, transaction reporting, and algorithmic and high frequency trading requirements.
The watchdog said it would consult on “the many Mifid II issues not covered in this paper” in the first half of 2016, once European regulators have finalised their proposals. The second paper will cover issues such as complex products, dealing commission, and portfolio fee transparency.
Mifid II is currently scheduled to come into force on January 3 2017, though European policymakers are shortly expected to confirm proposals to postpone this deadline by a year.
In a cost-benefit analysis of the first consultation paper’s proposals, the FCA warned that one key issue - measures designed to improve the transparency of trading - could create new problems.
Mifid II will extend the requirements of its predecessor for pre and post-trade transparency around the trading of shares on regulated markets, adding a focus on equity-like and non-equity financial instruments.
The new regulations also revise the existing framework for shares.
The FCA said: “If the regime is not calibrated correctly, it could have an adverse impact on liquidity in the trading of equity and equity-like instruments, and on the cost of capital for issuers.
“Trading venues and firms will need to adapt their systems to the new transparency regime.”
But the watchdog added that benefits could arise from the changes, saying: “Greater transparency may promote a more efficient process of price formation and increase confidence in financial markets. While we expect this to promote greater liquidity and to reduce the cost of capital for issuers, it is dependent on accurate calibration.”