Plato Partnership at TradeTech 2018 – What impact has MiFID II had on market structure and how will this alter trading behaviour in 2018?












Wednesday, 25th April 2018. 0905 – 0945.

The first panel discussion of the day at TradeTech saw the coming together of representatives from the London Stock Exchange, UBS and Capital Group. They discussed a wide range of topics including Systematic Internalisers (SIs), periodic auctions, market structure changes and trust in the industry.

There was a lot of ground to cover in the 40-minute discussion.


Key Takeaways


  • Periodic auctions, Large-in-Scale (LIS) venues and Systematic Internalisers (SIs) continue to grow in the early days of MiFID II. Statistics from venues suggest pre-matched activity is not as significant as suggested by regulators and in the media.


  • RTS 27 best execution reports will be largely ineffective. Data that could be useful is not required for those reports so it is considered, by some to be a waste of time and resources.


  • The high touch sales trader will remain important in markets. When orders are resting in large pools or periodic auctions, sales traders offer the ability to provide liquidity that isn’t seen in the market.


Key Questions and Quotes


What has changed?


” We’re still in the infancy of MIFID II. There’s going to be increasing fragmentation, and liquidity will turn up in unexpected places. For brokers, there is going to be some natural attrition based on technology inefficiencies – at the moment we’re trying to retain and retrain our staff. “


What’s your experience to date in working in an increasingly fragmented market?

“If we look at the SI regime, from the trade reporting we’ve got in place, the initial moves have been from banks and brokers themselves. There’s a bit of noise discussing whether broker trades count as SI trades – but this is in an early stage.”
 “Periodic trade is going very well – in fact, they have exploded. The interesting thing about this is that broker referencing was only 30%. 70% of the flow is available for multi-lateral access. You’ll see more and more LIS – and we have a very strong pipeline on this side.”


 Q: What’s the viewpoint from Systematic Internalisers (SIs)?


“When we look at this, we look for liquidity sourcing. We look at the amount of liquidity size and the growth of periodic trades.”


“There will be winners and losers. If we’re all sourcing the same liquidity, there will be attrition based on provision.”


Q: What sort of conversations are you having with clients post-MiFID II?

“People are adapting to the new regime and it’s very difficult to discuss what comes next. The way that people trade will evolve based on new structures, but this is a slow evolution. You can remove broker crossing, dark volume caps etc – but how people are adapting to this is still being decided.”


“Lit Markets don’t have the mechanisms in place to protect longer-term trading desires of the buy-side, and other different market requirements, such as protecting orders.”


Q: There’s been a lot of negative press around periodic auctions. What’s your experience to date?


“We provide full transparency and flexibility and we ask our clients to embrace the change. Given the fragmentation going on in Europe, etc, we advise our clients that these are great places to trade. We tend to see 50-60% are satisfied, where we usually see 10-20% spread capture.” 


“There’s another aspect to periodic auctions which we haven’t assessed. They reduce information leakage, which is why our clients like them.”


“We’re starting to see a high volume of data. 80% of our data shows a match and an execution. Of the remaining 20% (the orders that aren’t executed), half don’t go through because of price fluctuations and half is people looking elsewhere.”


Q: How much interaction are you are having with different channels/platforms?


“If I look at the composition of our business, we’re using more execution channels and venues than ever before. Our traders are constantly evolving to the market.”


“Provision of liquidity means you have to spend on the high-touch channel. The capital commitment does become important. It’s about having a well-defined source of liquidity and giving it to clients.”


“Things are evolving, but while new technologies are being created it’s still essential to maintain the relationships.”


You’ve got to put in RTS 28 reports this month. Are you struggling with this – how will it change your behaviour?


“It’s quite an easy process, as we have worked a lot on MiFID II streams before the deadline. What becomes more interesting for us is how you extract value from RTS 27 reports. There’s a lot of scepticism in the market at the moment. There should be some standardisation so you can use them to feed into your best execution process.”


Q: What kind of standardisation are you looking for?

“Using the same protocols across different frames would help people digest the information moving forward.”


“The data we’ve been talking about here – data in venues – won’t be in the RTS reports. We need to know the chance of trading etc. That sort of information would be useful in terms of comparing venues – rather than just comparing price points.”


“Venue reports are going to be pretty useless. Because venues want to demonstrate that they are going to be the best venue in the market.


Where are you going to be concentrating in the next year?


“What’s important is to make sure your liquidity solutions are useful for the client base. Quant funds will have a different view to fundamental funds and will trade in different ways. We need to invest in different tools, as well as in algorithms.”


“market makers are coming to us and saying I don’t need to be fast, I just need to be able to up-size.”