MiFID II Handbook | Page 12

MiFID II VIEWS : LONDON

QUESTIONS LOOM OVER NEED FOR SI REGIME

The Trade ’ s MiFID II series of pop up events gave traders the opportunity to raise questions about the forthcoming regulatory changes . Joe Parsons documents the narrative in London

Market participants gathered in London in May to discuss ongoing concerns relating to Mifid II including a recurring bugbear – the systematic internaliser ( SI ) regime .

While the SI regime has been in place for equities trading since Mifid I , it is now being expanded to non-equities asset classes including derivatives and fixed income .
According to market participants speaking at The Trade ’ s London MiFID II event in May , banks of meaningful size will likely become an SI , however , many believe the rules governing SI trading activity are vague .
“ We still don ’ t have a clear idea as to why the SI regime is there . From our point of view , the requirements for our clients means the value of operating a SI is not clear ,” said one panellist .
The regulation effectively bans the use of broker crossing networks ( BCNs ) in order to become an SI , although questions linger over how banks will actually carry this out .
“ There are still several questions over whether you can integrate a BCN into an SI or should it be its own separate construct . While there has been a delay of a year to Mifid II , there is no final level 2 text for the SI regime , and I think it is highly unlikely all the questions on Mifid will be answered by January 2018 ],” the panellist added .
For banks that traditionally operated as BCN , the transition to an SI may be problematic .
“ For banks that have been operating BCN ’ s I think it ’ s going to be a challenge to operate
FOR BANKS THAT HAVE BEEN OPERATING BCN ’ S I THINK IT ’ S GOING TO BE A CHALLENGE TO OPERATE UNDER THE NEW SI REGIME .
MICHAEL HORAN , HEAD OF TRADING , PERSHING under the new SI regime ,” said Michael Horan , head of trading at Pershing .
“ This is largely due to complex and ongoing trading threshold calculations required to decide whether they are an SI or not . This is especially difficult if a bank is trading very close to , or on either side of the thresholds .”
Neil Bond , partner and equity dealer at Ardevora Asset Management , added that while there will be a greater move to trading on SI venues , it will be difficult to imagine how the buy-side will integrate with them .
Bond questioned the dark pool cap provisions in the regulation , stating that there will be a degree of “ gaming ” between some venues that don ’ t want to hit their caps and will stop trading . l
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