2018 Plato Debates: Key Market Trends and Challenges in 2018 and Beyond
Market Participants and Market Leaders Panel
Mike Bellaro, CEO, Plato Partnership and formerly Global Head of Equity Trading at Deutsche Bank
Robert Barnes, CEO, Turquoise
Tilman Lueder, Head of Securities Markets at the European Commission
Kay Swinburne, MEP, Vice-Chair European Parliament Committee on Economic and Monetary Affairs
Stephen Hanks, Head of Market Policy, FCA
Nej D’Jelal, Head of Electronic Equities & Quant Prime Services Product, EMEA at Barclays
Niki Beattie, CEO, Market Structure Partners [Moderator]
The second panel of the day at the 2018 Plato Debate saw the coming together of market participants, regulators and legislators to discuss the major stories of 2018, and what to expect in 2019. Key topics covered by the panel include:
The key concerns for market participants;
What the sell-side are seeing in the market, and how they are reacting;
Whether the market is becoming too complex;
Better ways to approach double volume caps;
Whether the inclusion of a reference price indicates that auctions are no longer auctions.
Key Questions and Answers
What are the key concerns for people, and what do they say when they come to see you?
“Depends on who is knocking on the door! I hope that I can see the vested interest ahead of time. I have been fascinated by the journey that fixed income has gone on.”
“My initial impression was to expect those who work in fixed income to think I was out to get them, rather than facilitate the trades. But, having been at a fixed income conference, people came to say that they’d seen a huge difference, especially when it comes to the buy-side. I was also expecting complaints about consolidated tape, but the opposite was true. I just hope the data will iron out the issues about double volume cap.”
“Some of the most frequent groups of people to come through my door are stock exchanges and those that run systematic Internalisers. Additionally, there is lots of debate about tick sizes etc – it goes back and forward.”
“Other groups hold differing opinions: options traders come to see us a lot to talk about lowering the LIS standard to attract new participants, market participants think that it is better for trading to be dark, but the US demands more transparency. Additionally, Asset managers are concerned about the trading obligations and the trading post-Brexit – especially execution of their portfolios.”
“On the derivatives trading obligation, we have people expressing concerns fundamentally – predominantly coming from the US – in the way that trading and transparency works and favours incumbents.”
“Many of the topics are well known by many in this room. The focus should be an increase in efficiency to revenue across the board, technology has led to an interesting situation across the board.”
“Technology is going through a revolution, my challenge is to respond to these issues, without being disproportionate, and making sure the policy is implemented as expected.”
“If you look at this holistically, we have the chance to concentrate on where there is value. We have to be pragmatic at times – but not at a disproportional cost at the benefit of end investors.”
“There are significant strides in could computing and the lowering of barriers of entry. Machine learning is coming to life and is especially exciting.”
Is the market becoming too complex?
“In the last year, there have been 10 new venues created (if you count the 4 periodic auctions), there is broker consolidation, the merging of asset management firms, the order sizes that we’re trying to move into and out of, order size becomes more significant and complicated.”
“Is this good or bad? While we’ll look at this in the next view post-market design event that Plato will host in 2019, The way that venues have operated have led to better trading performance post-SI. Also, once these double caps have been raised the statistics will prove that they get better results.
“We’ve been preaching for 2 years that block trading will become the norm and that the asset management space will become larger and better.”
“From a venue perspective, the Americans have been knocking on my door. The European capital markets is the highest quality in the world. Our own case studies indicate that the US is about mass fragmentation, whereas a company listed in Europe has access to market leading automated block in very high sizes.”
“Comparatively, Asia have very successful markets, but some of the managers in Japan say that doing a 5million trade is not the norm.”
When is an auction not an auction? If there’s a reference price, is this an auction?
“If your political intention is to move trading from dark to lit, then you’re measuring an output that might not be the best place to execute, which does not mean the best place for your clients.”
“Regulators and politicians need to realise that what’s bad vs. what’s good, and you need to work out what’s benefitting the end investor. But regulators must also understand that the end investor might get better execution with a dark auction.”
The market evolves all of the time. The problem is MiFID II was 7 years in the making. The market has moved so much since (7 years in the making) that we have to look at any consistencies over this time – where the only measure is what’s good for the end investor.
“I think that the starting point of an analysis is that an auction, as a mechanism can be price forming. And you start from the premise that liquidity that is addressable from a variety of participants. If you can put in a variety of orders. In principle, the ESMA consultation should give regulatory advice.”
“In some extreme cases where you match trends, and a third party cannot enter into the fray – then the label ‘auction’ is misleading.”
“A lot of the debate is not about what the best protocol is, but a lot of the debate is about ’let’s see who the good and bad guys are’ and then work out what categories they go in. If we like them, then of course it must be legal! If they are bad – then it must be illegal.”
Do Regulators need to step in to ensure a consolidated tape?
“The other point you need to realise is that regulators and policymakers are not omnipotent. We cannot dictate how the world will function. We can put a framework in that will achieve a certain number of things. We need the market participants to work on their own frameworks.”
“Talking about data, actually the regulators and policymakers thought that data consolidation could be left to the market participants.”
We should really look at [consolidated tape] from a historical perspective and allow equal access for transparency, because there is not a level playing field around data at the moment.”
“Maybe I’ll get shot down for saying this – we’ve had this race for speed in the last few years, but how has this benefitted the end investor? Should regulators consider slowing this down? The other point is that any consolidated tape needs proper governance, and venues need to look at determining this from their own pricing feeds.”
“We are splitting hairs here about minor things. A consolidated tape could happen.”
“We need the policymakers to fight the battle and bring this to life. The venues are making a tonne of money based on data. The market is in desperate need of some additional changes.”