[ M A R K E T
adoption of SIs. “I believe SIs have
absorbed the rest of that activity
and internal SIs are probably trying
to get as much as possible done,”
he said. “While larger institutions
test the waters with external SIs, I
don’t think the buy side will fully
embrace external SIs until they
have solid data on performance on
those venues. They are being used,
but not widely across the buy side.”
Cave adds the DVCs will see
buy-side firms taking a closer look
at SIs and there should be more
execution data ready for analysis.
“SIs are a new way of trading for
the buy-side and, as with any new
venue, they want to able to analyse
execution quality before utilising
them properly to ensure they are
offering best execution,” he says.
Teething problems
Block trading and LIS venues
have certainly thrived in the new,
post-MiFID II world. Fidessa’s Top
of the Blocks report reveals just
how far block trading has come
over the past year alone, as the
proportion of dark traded-as-LIS
blocks reached a record 28.7% on
12 January compared to 12% in
January last year.
“LIS activity doubled last year
and we think block trading will
continue to grow this year,” adds
Rosenblatt’s Puaar. “However,
there is generally a natural ceiling
to the proportion of trading done
in blocks. The increasing number
of block-trading venues means it
may become even harder to match
large trades.”
So have volumes moved onto lit
venues as MiFID II intended? It
would appear not, or at least not
yet anyway, and as experts have
pointed out, the introduction of
DVCs will likely see firms consider
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T R A D I N G
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the once-feared SIs as a genuine alternative rather
than moving volumes onto lit exchanges.
There are similarities that can be drawn between
BCNs and SIs, as BCNs were too often misunderstood
and feared by market participants in the same way SIs
are now. But there are other aspects to using SIs that
are daunting to buy-siders; a lack of data and compli-
cated reporting in particular, as well as a bad repu-
tation following rumours of plans to circumnavigate
MiFID II guidelines via a trading loophole.
“I don’t think the buy-side will fully embrace
external SIs until they have solid data on
performance on those venues.”
NEIL BOND, HEAD OF TRADING, ARDEVORA
The industry is just a few months into the new regu-
latory landscape and any significant
depth of change will not occur
overnight. Metamorphosis on such
a monumental scale will always
throw up issues and teething prob-
lems are to be expected. Never-
theless, a tangible shift towards lit
venues is certainly not happening
yet, and with a flurry of new execu-
tion venues available under MiFID
II which are struggling to provide
coherent and granular data, it
could be argued that the regulatory
r egime has in some ways created
greater opacity and more venues
alternative to lit ones.
Questions remain as to when, or
indeed if, the buy-side will fully embrace and adopt
SIs as an execution venue. While periodic auctions are
poised to continue growing, block trading activity will
likely hit a roof at some point, leaving on-exchange as
the last venue to see any tangible increase in activity.
This could happen when the MiFID II RTS 27 best
execution reports are made public in June. Although
should that not come to pass, the industry can expect
ESMA to revisit MiFID II’s rules around trading ven-
ues to make further adjustments. Just don’t mention
MiFID III.
Issue 55 // TheTradeNews.com // 61