[ 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
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