[ F I N A L
T H O U G H T S
|
H AY L E Y
M C D O W E L L ]
Hayley’s
Comment
*Formerly the Hayley Mail
Systematic Internaliser confusion rumbles on
Consequences of SI regime remain a huge concern for the industry
with tech and liquidity worries at the forefront.
I
t was in February at The
TRADE’S MiFID II event in
London the controversy surround-
ing systematic internalisers (SIs)
first came to light. Speaking to an
audience of hundreds of buy-side
traders and market participants,
Kay Swinburne MEP, told dele-
gates the European Commission
were indeed aware of plans to
network SIs under the new regime
in order to operate as broker
crossing networks, which will be
banned as of 3 January next year.
Fast-forward several months
and following several exchanges
between the European Commis-
sion and the European Securities
and Markets Authority, regulatory
texts have been amended to shut
down any potential trading loop-
hole. So now it’s official, banks
operating as SIs will not be able to
recreate broker crossing networks
94
TheTrade
Autumn 2017
through matching client orders
as an exchange operator would.
Despite this, rather than eliminat-
ing concerns around the regime,
market participants have started
to question its impact.
Predictions on the number of reg-
istered SIs once MiFID II comes
into effect have topped 100, with
some investment banks opting to
register multiple SI platforms for
different desks offering liquidity
across asset classes. TABB Group
predicted in equity products alone
there will likely be upwards of 20
SIs operating before the MiFID
II deadline. With this in mind,
market participants are tasked with
interacting with as many of the SIs
in operation as possible, but many
buy-side firms continue to use leg-
acy systems. Without aggregation
technologies, it will be a struggle
for firms to interact with all SIs.
Interestingly, experts general-
ly agree order flow from broker
crossing networks will not shift to
SIs following MiFID II imple-
mentation. Once broker cross-
ing networks are banned it will
leave a big hole in liquidity, and
it remains unclear how much of
that flow will go to lit order books,
SIs or other venues. What is clear
though, is that there will be a large
amount of liquidity fragmented
across multiple venues.
The full effects of the regime will
remain unknown until 3 January,
but the potential consequences
of it remain a huge concern for
the industry. Personally, I thought
once the potential loophole had
been shut down the drama and
controversy surrounding the SI re-
gime would die down significantly.
But, as it seems with all things
MiFID II, the drama continues.