[ A D V E R T O R I A L ]
Meeting the growing
demand from the buy-side
for large-in-scale trading
Mark Pumfrey, head of EMEA at Liquidnet discusses the
changing nature of the dark landscape ahead of MiFID II.
“A
s Europe grapples with
many changes, impending
regulations such as MiFID II will
usher in a new era for institution-
al liquidity discovery, with many
reassessing how, where, and why
they trade in the dark.
One of the primary intentions of
MiFID II is to force more trading
onto lit markets to facilitate greater
price transparency. But dark
liquidity is fundamental to the way
institutions perform—particularly
for the industry’s larger executions.
To solve for these contrasting
interests, MiFID II aims to ring
fence large-in-scale (LIS) trading
while limiting smaller-sized dark
executions.
Buy-side traders have long valued
the ability to trade blocks but Mi-
FID II will provide an even greater
incentive to trade them — as a
necessary means of avoiding any
caps on dark trading. This should
benefit block-focused venues, but
there will also be extra pressure to
24
TheTrade
Summer 2017
find increased contra order flow
with matches requiring similar
price, size, and time parameters.
In the lead up to MiFID II being
implemented, we have seen a wave
of new trading venues and order
types being introduced, but in-
creasing fragmentation will further
complicate the pressing need for
block matches.
The rise of LIS
In August 2016, Rebecca Healey,
Liquidnet’s head of market
structure and strategy in EMEA,
published a report based on
interviews with 53 global heads of
trading managing $13.5 trillion of
assets – the results (in the chart
below) show that the amount of
LIS trading would have to increase
to around 27% of the dark market
to meet buy-side demand. Since
the study, we have seen the amount
of LIS trading nearly double in a
year from 5% in H1 2016 to 9.6% in
April 2017.
Mark Pumfrey, head of EMEA, Liquidnet
If this trend continues and
the amount of LIS dark trading
continues to rise, there will be a
need for a complete rethink of how
to create, consolidate, and access
dark blocks. Some ideas suggested
include aggregating flow to create