NEWS UPDATE
TRADING VENUES
Conditional orders and periodic
auctions come out on top post-MiFID II
When it comes to seeking liquidity under MiFID II, a survey of senior traders has
found that periodic auctions and conditional order types are the most useful.
T
he use of periodic auctions and conditional order types
are helping senior buy-side traders navigate liquidity
post-MiFID II more than any other technique or strategy,
according to WBR Insights.
A survey of 100 heads of trading across Europe at the end
of last year found a majority of 77% agreed that periodic
auctions provide better access to liquidity amid the double
volume caps (DVCs), more so than block trading platforms,
request for quote (RFQ) venues or systematic internalisers.
Widespread adoption of periodic auctions has been an
unforeseen trend since MiFID II was implemented. Traders
concur that despite regulatory concerns that the venue
type is in some cases used to circumvent the dark trading
rules, periodic auctions are beneficial in terms of show-
ing natural liquidity, reducing costs and achieving best
execution.
In January, responses from the market on the European
Securities and Markets Authority’s (ESMA) extensive
research on periodic auctions revealed that the majority of
trading firms oppose any further regulatory intervention on
the venues.
At the same time, the research from WBR Insights also
found a majority of 76% of senior traders agreed that
conditional order types have become the most important
trading strategy for navigating liquidity post-MiFID II,
followed closely by algo wheels and liquidity-aggregating
algorithms.
Conditional orders have risen in popularity in response to
MiFID II’s limitations of dark trading. They allow firms to
trade as usual, but when an opportunity to trade a large
block arises, it can withdraw other orders allowing traders
to take advantage of the large-in-scale (LIS) waiver.
“What’s clear here is not necessarily what order types
are more frequently used (although it’s no surprise to see
conditional orders top of the tree) but, the fact that the
vast majority of participants have actually changed the
way they trade in order to comply with best execution
requirements, and make best use of the tools available to
them to source fragmented liquidity,” Salvador Rodriguez,
head of electronic trading at Instinet Europe, commented
on the results.
MiFID II has also caused a shift in buy- and sell-side rela-
tionships, with WBR Insights’ report revealing that just 5%
of respondents have not materially changed the brokers
that they use. On the other hand, a significant 63% of
senior traders said that they have now taken more routing
and best execution decisions in-house.
“The ownership to the buy-side is evident with the
results here. In particular, routing decisions has been the
priority,” Susie Benaim, TradeTech Europe conference
director, commented. “Given the development of smarter
algos and better SORs (smart order routers), the ability to
monitor these more complex trades has improved as well
as the reporting ownership heightened.”
Issue 59 // TheTradeNews.com // 15