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Less than two weeks after MiFID II finally came into force , Neil Bond , head of trading at Ardevora , offered The TRADE his insight as to where activity had migrated in those early days of the new regime . “ Following the closure of BCNs , it seems periodic auctions have absorbed the majority of buy-side to buy-side crossing that was initially going through those venues ,” he said .
Bond ’ s observation is clearly validated by a surge in volumes across various periodic auction venues during MiFID II ’ s infancy . The Cboe Periodic Auctions book , for example , saw a record month of trading volume totalling more than € 6.5 billion during January , and average daily notional value ( ADNV ) traded reached € 296 million , a massive 885.3 % increase compared to the fourth quarter in 2017 .
Dark delay and data difficulties Periodic auctions are widely expected to sweep up even more order flow following the introduction of the double volumes caps ( DVCs ) for dark pools , which were delayed just one week into the MiFID II regime until 12 March by the EU markets watchdog . The European Securities and Markets Authority ( ESMA ) said in a statement released on 9 January that the data received from trading venues since MiFID II went live six days prior was insufficient and did not allow for a ‘ meaningful ’ and ‘ comprehensive ’ calculation of the planned DVCs .
“ The ban on BCNs has helped to boost periodic auction volumes ,” says Anish Puaar , market structure analyst for Europe at Rosenblatt Securities . “ Most periodic auctions offer broker priority which gives brokers a low-cost , transparent way of matching client orders that used to reside in BCNs .”
Even this early into the new regulatory regime it has become clear that data and reporting are significant issues to address . Confusion around SI reporting requirements has skewed the data , and a large proportion of transactions that were previously reported as over-the-counter ( OTC ) are now being reported as SI
“ With both SIs and periodic auctions , it is quite difficult to figure out what is addressable liquidity and what isn ’ t .”
TIM CAVE , EUROPEAN MARKET STRUCTURE ANALYST , TABB GROUP
“ The increasing number of block-trading venues means it may become even harder to match large trades .”
ANISH PUAAR , MARKET STRUCTURE ANALYST , ROSENBLATT SECURITIES
activity . It ’ s the same story with periodic auctions : what percentage of transactions executed through auctions is price forming or prematched ?
As it stands , the data is simply not granular enough and various different parties are coming up with their own estimates instead , making it near impossible to draw any firm or definitive conclusions from the available data sets .
Regulators including the UK ’ s Financial Conduct Authority ( FCA ) are supposedly keen to dive into the details of orders executed on auctions , prompting speculation that there could be tighter restrictions on how they operate in the future .
“ With both SIs and periodic auctions , it is quite difficult to figure out what is addressable liquidity and what isn ’ t ,” says Tim Cave , a European market structure analyst at TABB Group . “ It ’ s really up to the industry to come together and standardise how transactions are reported , particularly through SIs , to provide a better understanding of where liquidity is residing . Overall , there hasn ’ t been a huge shift towards lit venues which was of course the intention of MiFID II , so regulators will be watching this closely .”
Ardervora ’ s Bond also raised doubts over the early buy-side
60 // TheTrade // Spring 2018