Plato Partnership MiFID II Question Time, in partnership with The Trade

Recent years have brought some of the biggest challenges ever to be faced by the global equity trading marketplace, with MiFID II arguably representing the greatest single challenge in a generation.

Institutional equity markets are a complex ecosystem and these changes have had a particularly significant impact on the buy side’s experience of trading in size. As the current trading landscape transforms in response, Plato Partnership brought together the leading minds from both sides of the market to answer the granular questions beginning to form around MiFID II implementation.

With the discussion covering best execution, trade reporting and systematic internalisers; below are the key takeaways for how the market currently feels.

  • The world is not going to change as of January 2018 – MiFID II implementation is a process and an evolution.
  • Block discovery is a big challenge facing the market in terms of best execution and Execution Committees are key. Some of the existing committees do not understand all the data and issues they are faced with – the current process of data review makes things far more technical and we need to be able to explain it in layman’s terms to a committee that is not made up exclusively of traders.
  • Governance of best execution is going to increase – that much can be taken as a certainty. Something as specific as execution factors that are prescribed by the FCA or ESMA will need to be more clearly mapped into trading functions.
  • The level of sophistication is also going to increase; market participants need to be aware of this ahead of the fact.
  • Justification of strategy selection is now key – with firms spending a lot of time looking at that proportion of the trade equation. Getting the data correct and understanding what information there is available, is central. There then needs to be behavioural change off the back of this; data driven change is going to be a big step forward for a number of the leading market participants.
  • Additionally, validation of broker selection is going to be more important than ever before, as this has a central role in feeding into the narrative of better informed decision making and data driven analysis.
  • On the surface there appears to be a great deal of chatter surrounding the burden of trade reporting, especially for the buy side. But this is a misconception of the reality.
  • Certainly, from an equity perspective, it would be surprising if brokers have not already gone to the buy side and registered their intention to be an SI by Jan 3rd and as such have the responsibility to undertake said trade reporting.
  • It has long been a point of discussion within firms that moving towards assisted trade reporting will likely become a necessity due to the length and breadth of associated obligations post-MiFID II implementation.
  • The implication of faster trade reporting and automated mechanisms in a historically manual process does not mean that high touch will be left behind. With the increased automation of processes and greater efficiencies, high touch will only get better at what it already does; thus trade reporting does not signify the death of voice trading.
  • Ultimately, there shouldn’t be any strings attached to the trading process that could mean traders decide against trading in a certain situation and venue due to associated reporting requirements. In the grand scheme of things, this should not filter into the process to such an extent.

 

  • This is a complex question that market participants will be unable to fully answer until six months into 2018 when MiFID II implementation has been practically realised.
  • The onus placed on post-trade data and best execution means there will be an interesting evolution of the understanding of Sis, which in turn will dictate the interplay with the buy side.
  • Where there has been some discussion and debate is in respect to how firms collectively consider the connectivity between market makers and sell side firms to provide the required source of liquidity.
  • An SI is not limited to a specific system to get orders but can cover a number of different trading platforms.