[ A D V E R T O R I A L ]
a possibility that the DVC thresh-
old triggers could be avoided. On
average, if below LIS dark activity
were to be reduced by 21.17%, all
51% of stocks currently predicted
to be capped would in fact fall
below the 8% threshold.
One example of this potential
is Land Securities, currently
predicted to be capped at 8.65%.
Land Securities trades on average
299,000 a day in the dark below
LIS, however, if the below-LIS, av-
erage dark volumes fell by 40,000
shares to 259,000 shares a day
( just 1.1% of ADV), the instrument
would fall below the 8% threshold.
When viewing a look-back period
of just Q3 2017 (containing a higher
proportion of traded LIS), the
percentage traded below LIS falls
to 7.35%.
Transparent objectives
As we can see from the example
above, traditional behaviours
around trading will need to
change in order to avoid trigger-
ing the DVC thresholds. Portfolio
Managers (PMs) tend to drip-feed
their orders down to the dealing
desk, rather than being completely
transparent about the full size of
their trading intentions. However,
if the dealing desk is made aware,
not only will they be able to benefit
fully from the LIS waiver, they can
also ensure their trading activity
does not inadvertently contribute
to the DVC threshold being trig-
gered. This continual progression
towards improved communication
between Portfolio Managers and
their dealing desks also ensures
optimal execution outcomes. A
recent Liquidnet Best Execution
Report showed that 85% of those
surveyed admitted there was more
they could be doing internally to
improve performance.
To successfully navigate the shift-
ing liquidity landscape as a result
of the introduction of unbundling,
a comprehensive analytical review
of evolving execution options
throughout the lifetime of the
order will be needed. In particular,
buy-side firms will need to focus
on adverse venue selection or
improving unnecessary opportu-
nity cost lost through adjustments
to workflows, rather than simply
expecting their broker to enhance
execution performance. New
skillsets will be required, support-
ed by tools and technologies that
can help achieve optimum results,
either by notifying when trading is
above the LIS threshold to benefit
from the LIS waiver, or uncovering
improved sources of liquidity out-
side of traditional execution part-
ners. To achieve this successfully
firms will need to focus on their
consumption of accurate pre-trade
analytics data to ensure optimal
selection, rather than focusing on
a “look-back and check” to verify a
trading outcome.
Data is king
Post-January 2018 there will be
no guarantee of what the liquidity
landscape will look like once it has
shifted towards a new, truly un-
Rebecca Healey, head of market
structure and strategy, Liquidnet
EMEA
to continually enhance and evolve
execution processes.
As information becomes more
prevalent, traditional silos around
asset class execution will begin to
break down, and control of order
execution will switch from the sell-
side to the buy-side. The firms that
”If market participants merely adjust their
trading behaviours, they can have a direct impact
on whether the DVC threshold is triggered or not.”
bundled environment. We do, how-
ever, expect to see an increased
use of more accurate and complete
datasets with enhanced analytics
that will provide the necessary
additional layers of intelligence
independently focus on aligning
similarities of policy, process, and
performance - at multiple levels
throughout their organisation -
will be the winners of this stage in
execution evolution.
Issue 54
TheTradeNews.com
21