UPDATE
TK
Senior buy-siders agree periodic auctions require
regulatory tightening for addressable liquidity
Heads of trading at asset management firms express concerns around addressable
liquidity on periodic auctions.
S
enior buy-siders have agreed that regulators should
consider tightening the rules around periodic auc-
tions to improve transparency and reduce broker-pref-
erencing.
A poll of heads of trading and dealing at asset man-
agement firms across Liquidnet’s member network
found that almost 70% generally support periodic auc-
tions following the introduction of the double volume
caps (DVCs) for dark trading in March.
However, half of respondents recognised the need
for further regulatory tightening of periodic auctions,
particularly around transparency and broker-prefer-
encing, as it can be difficult to distinguish between
addressable and non-addressable liquidity. Regulators
have also expressed similar concerns and have said
that in some ways the venue type is circumnavigating
the rules under MiFID II.
“We don’t use periodics at the moment as it is diffi-
cult to identify what is attainable liquidity,” said one
senior buy-sider, while another added that “without
knowing the level of addressable liquidity, any price
transparency is meaningless”.
Periodic auctions have seen a surge in volumes since
the inception of MiFID II on 3 January.
6 // TheTrade // Summer 2018
Exchange operator Cboe saw its European Periodic
Auction book set a new one-day record of €1.08 billion
notional value traded. The new record on 24 April sur-
passed the previous one-day record of €969.2 million
set on 27 March this year.
The use of periodic auctions was widely debated
at this year’s TradeTech Europe conference in Paris.
Major exchange operators including the London Stock
Exchange Group and Cboe Europe, claimed pre-
matched activity on auctions has been overstated.
Speaking on a keynote discussion panel Tom Sten-
house, head of product for equities at the London
Stock Exchange Group, claimed that around 25%
of the exchange’s periodic auction volumes are
self-matching, and just 10% of that proportion comes
through at auction time while the remaining 90% are
resting orders.
“We don’t use periodic auctions
at the moment as it is difficult to
identify what is attainable liquidity.”
- ANONYMOUS SENIOR BUY-SIDER