THETRADETECH DA I LY
THE OFFICIAL NEWSPAPER OF TRADETECH 2018
TRADETech Daily examines whether trading volumes have
moved onto lit venues following MiFID II’s restrictions on
dark trading and the rise of systematic internalisers.
ne of the fundamental objectives of
MiFID II is to increase transparen-
cy and move trading activity onto
lit venues, but weeks into the new regime
record block trading and periodic auction
volumes have dominated regulatory head-
lines. Large-in-scale (LIS) venues were
widely tipped to the primary beneficiaries of
new requirements which saw the closure of
broker crossing networks (BCNs) and the rise
of systematic internalisers (SIs).
In the weeks leading up to the introduction
of MiFID II on 3 January, industry partici-
pants and experts have dissected the block
trading landscape and made predictions on
the migration of order flow from BCNs. One
trend became clear – periodic auctions, LIS
ple, saw a record month of trading volume
totalling more than €6.5 billion during
January, and average daily notional value
(ADNV) traded reached €296 million, a mas-
sive 885.3% increase compared to the fourth
quarter in 2017.
Dark delay and data difficulties
Periodic auctions have swept up even more
order flow following the introduction of the
double volumes caps (DVCs) for dark pools,
which were delayed just one week into the
MiFID II regime until 12 March by the EU
markets watchdog. The European Securities
and Markets Authority (ESMA) said in a
statement released on 9 January that the data
received from trading venues since MiFID II
“With both SIs and periodic auctions, it is quite difficult to figure
out what is addressable liquidity and what isn’t.”
TIM CAVE, EUROPEAN MARKET STRUCTURE ANALYST, TABB GROUP
venues and finally SIs were the venues to bet
on in a post-MiFID II world, not necessarily
on-exchange or lit venues.
In a Liquidnet member presentation in
February the firm said that, at a high level at
least, there hasn’t been a significant differ-
ence in dark and lit activity, and lit volumes
experienced no major change since 3 January.
Instead, Liquidnet found that periodic auc-
tion volumes had exploded, LIS activity had
continued to increase and SIs even snuck in
to steal a slice of the pie.
Less than two weeks after MiFID II finally
came into force, Neil Bond, head of trading
at Ardevora, offered his insight as to where
activity had migrated in those early days of the
new regime. “Following the closure of BCNs, it
seems periodic auctions have absorbed the ma-
jority of buy-side to buy-side crossing that was
initially going through those venues,” he said.
Bond’s observation is clearly validated by
a surge in volumes across various periodic
auction venues during MiFID II’s infancy.
The Cboe Periodic Auctions book, for exam-
went live six days prior was insufficient and
did not allow for a ‘meaningful’ and ‘compre-
hensive’ calculation of the planned DVCs.
“The ban on BCNs has helped to boost
periodic auction volumes,” says Anish Puaar,
market structure analyst for Europe at Rosen-
blatt Securities. “Most periodic auctions
offer broker priority which gives brokers a
low-cost, transparent way of matching client
orders that used to reside in BCNs.”
Even this early into the new regulatory
regime it has become clear that data and
reporting are significant issues to address.
Confusion around SI reporting requirements
has skewed the data, and a large proportion
of transactions that were previously reported
as over-the-counter (OTC) are now being
reported as SI activity. It’s the same story
with periodic auctions: what percentage of
transactions executed through auctions is
price forming or pre-matched?
As it stands, the data is simply not granu-
lar enough and various different parties are
coming up with their own estimates instead,