Conference Dailys TRADETech Daily 2018 | Page 18

THETRADETECH DA I LY 3% No significant changes 40%-50% 62% 32% 3% How much of the dark market will be done in blocks 12 months from now? 36% Small changes to certain aspects of legislation 45% 19% MiFID 2.5 MiFID 3 30% or less More than 50% delayed the implementation of its dark trad- ing rules, which will introduce double volume caps (DVCs), triggering bans on certain types of dark trading when a transaction accounts for 4% of the total activity on a single dark venue, or 8% of total trading market-wide. A statement from the European watchdog on 9 January detailed that the data it had received from trading venues in the six days since the new regulations came into force was insufficient for a “meaningful and compre- hensive calculation” of the caps. That data was finally published in early March and showed a total of 744 instruments in January and 643 in February this year hit either the 4% or 8% dark trading threshold. Within the first week of the DVCs, which eventually came into force on 12 March, trad- ing in dark pools halved and large-in-scale (LIS) activity dropped slightly across Europe according to data from Thomson Reuters. The Thomson Reuters March Share Re- porter analysed activity between 12-16 March displayed a clear indication that volumes in dark pools are declining: Trading in dark pools halved to 3.06% market share of on- book trading from 6.15%, while LIS trading fell slightly to 1.25% market share of on-book trading from 1.43%. The delayed implementation of the DVCs did not come as a shock to the buy-side, who understood that the sheer scale of the legis- lation and volumes of new data would likely cause problems. “There were always going to be issues with the initial implementation of MiFID II,” Liontrust’s McLoughlin added. “That was always going to happen because there is so much involved and so much data needed to be compliant. It was never going to be easy; it’s an immediate change across the industry. There are always glitches with something like this before everything is ironed out.” Looking forward Just how long it takes for all the nuances and glitches of MiFID II to be ironed out is a matter of conjecture depending on where people sit in the market. While much of the discussion leading up to the introduction of the new rules was focused solely on the 3 January implementation date, there is still much more work to be done going into the rest of the year and beyond. Quantitative data won’t become available on how the trading landscape has changed for some time to come – with some estimat- ing that it could take as long as 18 months to filter through – but some market changes are clearly being felt already. Just one week into the new regime, the Eu- ropean research market saw a decline of $300 million in the wake of MiFID II’s new rules on unbundling payments for investment research and execution fees. A study by Greenwich As- sociates found research and advisory budgets were reduced on average by 20% year-on-year, causing nearly $300 million to be wiped off its estimated $1.35 billion value, while firms in Continental Europe made more severe cuts, slashing equity research budgets by 32%, although firms in the UK were more restrained and reduced budgets by 17%. What is evident is that MiFID II has placed more responsibility on the buy-side to ensure systems are working on a day-to-day basis as they should be, and to stay on top of trades that leave reporting obligations with the buy-side. Nevertheless, Hock at Union Investment concluded: “We will continue implementing new technology, improving our processes and continually training our traders to be more proactive with venues and organisations.” “There were not any major disruptions or a drop in facilitation of liquidity across all asset classes in the first two weeks of MiFID II” CHRISTOPH HOCK, HEAD OF MULTI-ASSET TRADING, UNION INVESTMENT 18 THETRADETECH DAILY How significant will amendments to MiFID II be? THE OFFICIAL NEWSPAPER OF TRADETECH 2018