Plato Partnership Newsletter September 2020

PLIA by PLATO Publishes a New European Questionnaire for Best Execution and MiFID II Compliance

After almost three years, a new European focused questionnaire has been created to modernize the existing due diligence framework so investment managers can ensure best execution standards are being realised.  The new questionnaire expands upon the 2017 version with more emphasis on risk controls, surveillance, systematic internalisers, and venue selection.  While the questionnaire is focused on electronic trading protocols and capabilities for equities, the 124 questions cover a lot of ground as it relates to broader issues, such as analytics, team structure, reporting, and client confidentiality.

Bill Stephenson, CEO of Urvin.Compliance, said, “After becoming a preferred partner of the Plato Partnership earlier this year, we formed the European Advisory Board (EAB), which includes 10 major buyside (representing £10 trillion in AUM) and several of the largest global sellside firms.  The EAB has been instrumental in creating the latest version of this questionnaire which will become the new standard for European investors.”

Users of the PLIA by PLATO platform in Europe can now access this questionnaire, including the ability to customize the template by deleting or adding existing questions from an extensive global database.  The benefits for the sellside are clear; once a question from the new questionnaire is answered for one client, it will automatically populate for all clients asking the same question.  The sellside user would just need to verify the automated response before submitting it to each client.

With higher standards related to best execution under the MiFID II regime, the meaning of ‘taking all sufficient steps’ to achieve the best results for clients means fully understanding how counterparties operate and ensuring that it aligns with an asset manager’s execution objectives.  Part of that validation process can be achieved by leveraging Plia’s capabilities whereby the counterparty responses can be centrally managed, audited, compared, and better understood. This industry-led standardisation process creates a common framework where best practices can become more obvious and transparent.

“Having a standard questionnaire for European asset managers will not only streamline their process for counterparty management, but the collaborative energy used to organise this questionnaire will ensure many of the right questions and conversations are occurring throughout the industry,” noted Stephenson.

In the future, Plia will be publishing an updated version on a yearly basis, in addition to regional versions that align with local regulatory regimes and market structure nuances.  Additional multi-asset versions will also be compiled to meet other standards, such as the recent FICC Markets Standards Board draft as it relates to algorithmic trading in the fixed income, currency, and commodity markets.

Free access to the new questionnaire can be requested here.

Turquoise Plato Lit Auctions™

Further to the update provided during the Summer, our focus remains Turquoise Plato™ and Turquoise Plato Lit Auctions™ and particularly now the GFA order type is active. This should make the Turquoise Plato Lit Auctions™ a priority for inclusion in broker lit algorithmic strategies.

Whilst we know historically firms have included Turquoise Plato Lit Auctions™ just within dark algo suite strategies on the basis it is another way to trade smaller sizes at midpoint when stocks have been prevented from dark trading due to Double Volume Caps. The introduction of the GFA broadens this opportunity across into lit strategies.

Fewer firms, we understand, have added Turquoise Plato Lit Auctions™ to lit order book strategies. They should, since VWAP strategies for example with patient orders resting on the bid or offer that, when unfilled are often forced to cross the spread to trade. Such orders should try to achieve price improvement at the midpoint via Turquoise Plato Lit Auctions™ rather than suffer the full spread when that time for urgency arrives.  Firms should continue to consider strategies which rest meaningful positions in Turquoise Plato Lit Auctions™ to ‘catch’ these GFA orders that will check Turquoise Plato Lit Auctions™ before crossing the spread. We continue to see in addition to trades at midpoint, significant and unique liquidity in Turquoise Plato Lit Auctions™ with large size orders.

Matching large orders
Routinely more than a fifth of Turquoise Plato Lit Auctions™ trades are above €100k which can be 10x or more the average trade sizes of stocks matched on continuous UK & European order books, both dark and lit…and at midpoint saving costs.

At the larger end of the scale, the Max trade sizes recorded are much more than 100x larger than average trade sizes. Turquoise Plato Lit Auctions™ offer unique liquidity mostly at midpoint with quality low price reversion after the trade.

Internal analysis indicates that the most recent hardware refresh of Turquoise last year has had a further positive measure with the system latency of Turquoise today being significantly lower (= better) than that of many Primary markets.   Therefore firms should be prioritising Turquoise more for UK & European names.  We are happy to discuss bilaterally with members to explore how we can help serve as a sounding board to optimise order execution. The key message is that it makes sense to prioritise Turquoise: for conditionals like Turquoise Plato Block Discovery™ – you get the firm up faster, and for frequent batch auctions like Turquoise Plato Lit Auctions™ – now with GFA order type which functions like an IOC into frequent batch auctions for lit midpoint trading.   All of these channels are there to help get business done from a quality of execution perspective.   Remember, Turquoise randomised matching mechanisms remain industry leading from a low price reversion after the trade measure.

2020 MI3 Conference and Plato Conversations Online Events

You will have hopefully already received invites to our two upcoming online events, the 2020 MI3 conference on 23 – 24 September and the Plato Conversations on 10 November.

The 2020 MI3 Conference will see respected academics from Universities across the world present a number of papers on the most current trends and topics affecting market participants in Europe, while the Plato Conversations event will focus on the future of artificial intelligence and feature leading experts on AI and financial services.

Response to the events has been strong, so if you have not already registered your interest please do so using the link below.

Find out more and register for the 2020 MI3 Conference Here

Find out more and register for the 2020 Plato Conversations Here