[ M I F I D
“Behaviour doesn’t change on a step basis, so my
expectation is that we will see changes in how people
trade over the first six months of the year,” says
Semark. “That will be impacted again as some of those
stocks come back from their dark cap suspensions.”
Where to trade?
The most apparent beneficiaries of the new regime will
be lit trading venues, specifically for orders that are not
LIS. However market operators and brokers have been
examining alterative trading models in order to support
the fall off in smaller orders for dark trading.
“We think the flow will go in multiple directions,”
says Mark Hemsley, president for Europe, CBOE.
“Some may go to the lit markets which should see
some benefit from it. The other places will be periodic
auctions which is something we have pioneered. They
do show the indicative auction clearing price and
indicatively what volume might be matched in that
auction. Because there is pre-trade transparency for
the clearing price it counts as a lit book in clearing
terms, and is not subject to the double volume cap.”
Large-in-scale solutions will also see some benefit
from the inability to trade small sizes in the dark, the
explicit intention of the new rules and something that
many buy-side traders support.
The head of European trading at a large asset man-
ager, says, “Really I think the industry overstepped
the mark in dark trading and too much of the small
stuff got pushed through there. After MiFID II I can
still trade large-in-scale if I want and run my market
orders elsewhere.”
The more unknown element is the potential that the
systematic internaliser (SI) framework has. Where
broker crossing networks (BCNs) are forced into a
categorisation under the MiFID II regime, they will
fall within the multilateral trading facility (MTF)
box if they cross client flow, and the SI box if they are
purely proprietary flow matching with clients. They
will have certain advantages – such as discretionary
access – but the loss of the NTW and RPW will reduce
their attractiveness for buy-side clients.
“It does give banks, electronic market makers and
anyone willing to take proprietary risks, the opportu-
nity to face off to trades directly subject to their public
SI quote to show where they would trade at,” notes
Hemsley.
That will raise questions around the approaches to
trade execution taken by traders, which strategies to
employs and the way they are entered into the market.
I I
|
D A R K
P O O L S ]
“We will be relying on traders
intuition initially and also on some
inertia with relatively low activity
made around the deadline, in my
opinion,” says Boardman.
Once the caps are hit, whether on
day one or in the week of the 8th,
buy-side firms are likely to shift to-
wards increased LIS trading and lit
books, but for the less liquid stocks
for block orders could significantly
increase in popularity.
“There could be a move towards
high touch trading in FTSE250
types of stocks,” says Horan. “The
“There have been a number of
comments that if things don’t pan
out as expected ‘changes will have
to be made’.”
RICHARD SEMARK, MANAGING DIRECTOR
FOR EQUITIES, UBS & CEO, UBS MTF
real guts of the detail is that the
liquidity profiles on which stocks
trade will be completely different
from a Vodafone versus ABC Min-
ing which is quote-driven stock
and hardly ever trades.”
Despite a relatively fixed number
of choices that traders could take,
there are still potentially unfore-
seen dynamics that might shake up
the new trading landscape.
“A major concern is the regula-
tors; there have been a number of
comments that if things don’t pan
out as expected ‘changes will have
to be made’,” Semark observes. “I
would hope that is something we
can look forward to in 2019 rather
than 2018. Aside from that, the un-
knowns are how attractive the new
structures such as conditionals and
periodic auctions are going to be.
The massive question is, how much
does behaviour change?”
Issue 54
TheTradeNews.com
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