The TRADE 52 | Page 25

[ A D V E R T O R I A L ] Change in Dark Trading Composition Source: Rosenblatt securities, BATS Europe, Bloomberg execution data BCN/SI 46% 48.2% 43.8% 42.0% 40.4% MTF (non LIS) 33% Scope: 1st Jan 2016 – 30th April 2017 39% Please note post MiFID II estimate based on Liquidnet research carried out in August 2016, and information presented here may change after Level 3 text is released. Dark market comprised of all dark MTF, and BCN / SI trading. Excludes other OTC trading. 48.5% 48.6% 50.0% 6.1% 7.7% 9.4% 9.6% H1 2016 Q3’16 Q4’16 Q1’17 Q2’17 Post MiFID II €7.7bn €6.4bn €7.2bn €7.2bn €7.5bn €6.8bn 49% 45.7% 5% 27% MTF (LIS) Dark ADVT* blocks, conditional orders, and other new order types such as mid-day or continuous auctions. As a consequence of the contin- ued growth in LIS trading, we are seeing increased usage for our new conditional routing functionality to trade LIS in both our own dark pool and in Turquoise Plato BDS and BATS LIS. As we approach MiFID II, broker crossing network (BCN) activity has decreased from 46% to 40% of overall dark trading. Given that the final level 3 text has not been published by ESMA, as well as the differing views from regulators and sell-side practitioners on how systematic internalisers (SIs) can operate within the rules, there is significant uncertainty around how SI activity will shake out post MiFID II. It remains to be seen whether SI activity will decrease to 33% of dark trading (as proposed in the original research), or will actually increase once MiFID II is in place. Demonstrating best execution MiFID II does not prohibit firms from selecting only one execution venue to execute client orders, however, using a single venue does not allow a firm to discharge its best execution obligations. Firms must be able to demonstrate that they can still consistently get the best results for their clients and will need to regularly assess the competitive market landscape to determine whether or not there are alternative venues that they could use. As firms now have to include a list of the venues that they use, as well as a list of the quantitative and qualitative factors used to select brokers, analysis must also be car- ried out to determine whether or not other suitable venues exist. “There is huge potential for valuable innovation to give more control to the buy-side.” Ultimately MiFID II will mean that the buy-side will need to show greater accountability for their best execution processes as they unbun- dle and crucially have the necessary audit trail to prove that is the case. It’s clear from conversations with our members that data will be critical in this ongoing discovery process to meet the demand for LIS trading, yet while the industry faces significant challenges there is huge potential for valuable innovation to give more control to the buy-side.” Issue 52 TheTradeNews.com 25