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Low market impact
and best execution
Mark Hemsley, president of Cboe Europe, talks to THE TRADE about one
of the industry’s hottest innovations in recent years – Periodic Auctions
– and the positive reception it has received from the market
Under MiFID II, periodic auctions
have been a clear winner in terms
of attracting volume. Was this the
outcome you expected when you
launched Periodic Auctions in 2015?
We launched our Periodic Auctions
book in response to demand by mar-
ket participants for a below large-
in-scale (LIS) execution alternative
to existing trading book models
where size is given priority over
speed. Our Periodic Auctions book
was developed with the MiFID II
regulatory framework at its heart.
We expected that the equities
market landscape would shift with
the changes that took place under
MiFID II, and we prepared accord-
ingly. With the double-volume caps
on dark pools and elimination of
broker crossing networks, there
was going to be a reduced number
of venues that provide low market
impact when executing a trade.
Institutional investors such as
buy-side and pension funds, who
represent retail investors across
Europe, benefit from being able
to trade on venues that provide
minimal market impact. MiFID II
recognised this benefit and thus
the regulation allows for large-in-
scale block trading venues, sys-
tematic internalisers, and periodic
40 // TheTrade // Spring 2019
auctions, which are explicitly dealt
with in MiFID II (See Annex 1 of
RTS1) and MiFIR (Art 3 (1)).
Our Periodic Auctions trading
model was developed in conjunc-
tion with market participants using
a well understood and established
market mechanism in a new,
innovative way. In particular, it
provides a non-latency sensitive
environment where size is prior-
itised over price and opportunity
costs for posters of passive liquidi-
ty are minimised.
We think Periodic Auctions has
been a positive development for
the European equity market and
has delivered solid results for our
customers by improving execution
performance. For us, it’s really
listening to our customers and
developing services to help them
address their challenges.
What do you think has driven the
growth of periodic auctions?
I think there are a number of factors
that have driven the growth. First, I
think customers have been pleased
with the execution results. It’s a
good solution for firms looking to
trade with minimal market impact,
while meeting the MiFID II best
execution needs. Analysis from data
Mark Hemsley,
President, Cboe Europe
provider big xyt found that, when
using price movement as a proxy
for market impact, when a trade is
executed in a periodic auction, the
probability for a price movement is
very low and close to that of block/
LIS trades. That’s a pretty impres-
sive result, that you can execute
sub-LIS trades in a timely manner