Implementing MiFIR: Regulators’ priorities for asset managers, banks and exchanges
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Market structure, dark pools & their impacts on buy-side investors
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Implementing MiFIR: Regulators’ priorities for asset managers, banks and exchanges
- 1. Implementing MiFIR: Regulators’ priorities for asset managers, banks and exchanges Arjun Singh-Muchelle Senior Advisor, Regulatory Affairs (Wholesale & Capital Markets) Investment Management Association
- 2. Market structure, dark pools & their impacts on buy-side investors
- 3. Main trading venues (by volume) for all European equities (Feb‘14) Over 40% of all equities trading takes place on just 2 venues Over 50% takes place on just 3 venues Over 75% takes place on just 6 venues Source: Thomson Reuters EMSR
- 4. European Dark MTF market share for all equities by venue (Feb ‘14) Source: Thomson Reuters EMSR Over 50% of all dark MTF activity takes place on just 2 venues 75% takes place on just 4 venues Over 98% on just 6 venues
- 5. European dark trades as a share of the total EU order book (Feb ‘14) In Feb ‘14 – the volume cap would have, on average, affected €12.42bn worth of trades on a daily basis 8% EU-wide threshold Source: Thomson Reuters EMSR In Oct ‘13– the volume cap would have, on average, affected €32.16bn worth of trades on a daily basis
- 6. Dark pools – price improvement
- 7. Case Study: FTSE 100 by execution venue (Feb ‘14) Source: Thomson Reuters EMSR Over 50% of all FTSE 100 listed firms trade on just 2 venues Over 85% trade on just 3 venues Over 90% on just 4 venues
- 8. Case study: FTSE 100 by execution type (Feb ‘14) Source: Thomson Reuters EMSR Dark trades (both MTF and BCNs) made up just 10.82% of FTSE 100-listed trades
- 10. Market Structure, dark pools and their impacts MiFID I led to a liberalisation of the European trading venue market This liberalisation had brought about narrower spreads and increased liquidity at both, the global- and local-levels. This led to innovation and efficiency. Fragmentation another word for competition? MiFIR/DII is the application of a concentration rule, by stealth In order to mitigate any adverse impacts of the volume cap mechanism, it should be implemented in a phased-in approach; starting with the most liquid, then the less liquid, then the least liquid, over a period of 18-months. ‘Dark’ liquidity is not going to go ‘lit’. You will see a proliferation of SIs. This means worse transparency between sell-side brokers and buy-side dealers. We believe SIs will offer better price improvement compared to primary exchanges. Given our fiduciary duty to act in the best interests of our clients, we will need to trade via our brokers’ SIs, despite poorer post-trade transparency. Mandate the use of FIX tags 29, 30 and 851
- 11. Implementing MiFIR: Regulator’s priorities for asset managers, banks and exchanges Arjun Singh-Muchelle Senior Advisor, Regulatory Affairs (Wholesale & Capital Markets) Investment Management Association
Editor's Notes
- The graph shows the main trading venues (by volume) for all European equities for February 2014. As you can see: Over 40% of all European equities trading takes place on just 2 venues Over 50% of all European equities trading takes place on just 3 venues Over 75% of all European equities trading takes place on just 6 venues
- Across Europe, just 29% of all MTFs are dark MTFs. This graph shows the market share of the dark MTFs for all equities by venue type. Important to remember that dark MTFs are dark pre-trade but immediately lit on a post-trade
- - Average price improvement of 14.21bps - Over 99% of dark pool trades were also executed within the EBBO
- This graph illustrates that the majority of the names adversely affected by the volume cap mechanism will not be the Vodafones of the world; but rather, firms listed on the FTSE 250 and FTSE Small indices. Perhaps unsurprisingly, most of the names to be affected by the 8% threshold are based in the UK.
- MiFID 1 led to a liberalisation of trading venues in Europe. Much like the liberalisation of the air travel market, liberalisation of the trading venue market has brought about narrower spreads and increased liquidity at both, the global- and local-levels. This liberalisation has led to innovation and efficiency. Fragmentation therefore, is just another word for competition, in a liberal sense. MiFIR/D II is, in the view on buy-side investors, the application of a concentration rule, by stealth. In order to mitigate any adverse impacts of the volume cap mechanism, this should be implemented in a phased-in approach. Moreover, I find it bizarre that we are moving trades from automated dark pools, a system where, axiomatically you have immediate post-trade transparency to a system where the nature of the trade is such that it may qualify for delayed reporting; thus, delaying transparency in comparison with today’s world will in effect, make post-trade transparency worse for buy-side investors to the tune of €12.42bn in Feb ‘14. From the buy-side dealer’s point of view the rules are not only restricting where we can execute, but the post trade transparency, will suffer as more will qualify for deferred publication. And post-trade transparency, in other words, honest reports of where real trades occurred, rather than hopeful quotes before-hand, is where the real value lies. We believe SIs will offer better price improvement when compared to primary exchanges. Given our fiduciary duty to act in the best interests of our clients, we will need to trade via our brokers’ SIs, despite poorer post-trade transparency. As such, the IMA is calling for the legal mandation of the FIX tags 29, 30 & 851 to improve post-trade transparency for buy-side investors.