2nd CEPR-Imperial-Plato Market Innovator (MI3) Conference 2018
Evolving Market Structure in Europe
Stephen Hanks, Markets Policy, Financial Conduct Authority
Natan Tiefenbrun, Managing Director, European Execution Services, BAML
Tilman Lueder, Head of Securities Markets, the European Commission
Richard Semark, CEO, UBS MTF
Dr. Andrei Kirilenko, Director, Centre for Global Finance and Technology, Imperial College Business School
Christoph Hock, Head of multi-asset trading, Union Investment
Nej D’Jelal, Head of Electronic Equities, EMEA, Barclays and Plato Partnership Co-Chair
A panel comprising regulators, academics and market participants gathered at the 2nd CEPR-Imperial-Plato Market Innovator (MI3) conference to discuss the evolution of market structures across Europe.
They give their insights into topics ranging from Systematic Internalisers (SIs) to trading fees, and from periodic auctions to future research that Plato Partnership can deliver.
Do you think competition has increased following the introduction of MiFID II?
“One of the debates on MiFID has been to reach judgements on what it’s done to the market. These things take time to work through. Anything we say today is inevitably preliminary, and not necessarily where we end up. In terms of competition, you cannot reach a definitive view of MiFID’s success.”
“There are elements in the legislation, such as giving a level playing field in OTC trading, which do give increased competition. Indeed, there are other aspects of the legislation which has allowed greater flexibility, and therefore more venues into the market.”
“There is plenty in the legislation which is helping with competition, but there are elements that push in the other direction.”
“It’s early days. There’s been a wave of innovation on the venue level. There is a new dialogue about what a new execution service looks like. It’s certainly shifted and elevated the level of competition between brokers.”
How have trading fees been impacted recently?
“We sometimes have increases in trading fees by 400%. If there is no competition, then fees go up. If there is competition, then fees do not generally increase.”
“Despite the changes we’ve seen through MiFID I and II, there’s a monopoly of primary exchanges in certain areas. Funnily enough, the price of that goes up in a world where other prices are coming down.”
“One of the areas we are seeing competition is in technology used to access the market, but periodic auctions etc. are looking for low latency, and different ways of trading to allow institutional flow.”
How are the buy-side seeing changes in the market?
“There are a number of firms who wish to make profit on their own positions. You can see these venues as having a captive audience”
“The whole unbundling debate goes in the right direction. We give our brokers fair and competitive rates, so also from this perspective we’re happy with the outcome of MiFID overall.”
“We’ve seen more innovation, but primary exchanges still need to be addressed. Innovation still happens mostly outside the primaries; the cost of data is a pain in the neck – especially since we’re faced with a monopoly.”
What are the priorities for regulators when they assess SIs?
“SIs are one component in our assessment. We’re collecting information, though the buy-side can be wary of SIs because they aren’t interacting, so we need to see details about toxicity. Again, it’s going to be an evolving picture of the use that’s made of SIs”
How can Plato Partnership give firms neutrality when they look at performance environments, and understand the relative benefits of different venues? Is this research that needs to be conducted?
“Yes, of course. You’ve seen the quality of the work that Imperial College have done so far – the Faculty just requires the information and data to make this work possible.”
“If firms have data that can be used by regulators, please make the public with an announcement comparing different venues. This will prove very useful when the ESMA is having important discussions with the parliamentarians etc.”
Are periodic auctions good, or bad? Can you qualify for us a little bit – are they here to stay?
“They’re good, on balance. It’s interesting they’ve launched one without a pegged mid-point, which is interesting but also a huge headache. In the absence of a pegged to mid order type, this process has to be replicated, which involved not hundreds, but thousands of new orders.”
“Because it’s very new, it will throw up different opportunities to other periodic auctions. There are a number of academic studies which show that this is good to prevent information leakage.”
“If pegged to mid remains valid in future, then we’ll implement it because it’s useful for our clients.”