Authored by Professor Carole Comerton-Forde, Professor of Finance at the University of Melbourne, MI3’s maiden publication examines how firms need to adjust to new restrictions on dark trading and the closure of Broker Crossing Networks that will come about during MiFID II’s implementation in January 2018.
While the industry will be able to weather several of the changes easily, certain points, such as double volume caps being assessed by the European Securities and Markets Authority, are likely to have more dramatic and adverse effects, with possible suspensions prohibiting dark pool trading at venues if trading volume caps exceed accepted limits.
The paper makes four main recommendations:
- Buy side firms will need to assess 2017 trading levels to determine whether volume caps will be reached, possible triggering trading suspensions
- Buy-side firms will need to collaborate with sell-side on adjusting operating practices when dark trading is shut down in certain stocks
- Firms will need to carefully evaluate the merits of new trading venues
- Buy-side firms should look to effectively capitalise on new data provided by MiFID II to assist with the evaluation of trading outcomes.