[ M A R K E T
participants expect a drop in volumes once the rules
change, but reiterates the buy-side “won’t simply sit on
their hands”.
SIs certainly have an opportunity to build trust -
once lost in various dark pool scandals - and market
share, despite the changes to the tick size regime
which would have acted in their favour had it not been
altered. The question remains can we expect more
activity on lit venues than we previously thought? SIs
were once considered to be the alternative to BCNs,
but now you’ll be hard pressed to find market partici-
pants who would bet on SIs sweeping up all order flow
from BCNs.
Speaking at The TRADE’s MiFID II Checklist event
in London earlier this year, panellists agreed there is
a place for SIs in a post-MiFID II world, but flow will
not migrate solely towards that venue type and instead
will migrate towards lit venues.
Ultimate determining factor
Alasdair Haynes, founder and chief executive officer
of pan-European equities exchange Aquis, believes the
cost of trading will be the ultimate determining factor
above anything else when looking at lit venues, but the
liquidity has to be there. Aquis Exchange has a unique
and very innovative pricing structure in the form of a
subscription model. In 2016, Haynes controversially
announced plans to ban ‘predatory’ and ‘aggressive’
traders on the exchange, stressing that high-frequency
trading activity is detrimental to the market. It turned
out to be a good move and the exchange has seen
considerable growth ever since as it evolved into one
of the least toxic exchanges in Europe.
“Cost will be the determining factor above anything
else, but you have to have the liquidity and the fact we
have substantial liquidity which is non-toxic is even
more beneficial,” Haynes says. “There’s a number of
things for firms to look at, if I cant cross internally I
first look at cost, then it’s about where am I able to
trade and which venue is best for reducing toxicity.
The beneficiaries are the lit books which of course is
the intentions of the regulators. I believe Aquis Ex-
change’s time has come.”
McLoughlin says cost is vital to his trading desk but
adds this will be even more important moving into
2018. As MiFID II brings more data through extensive
reporting requirements and the use of transaction cost
analysis (TCA) to prove best execution, the wheat will
certainly be separated from the chaff in the exchange
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world in the long-term. “Reversion
and impact costs will be a massive
factor as to where the order flow
will migrate to in a post-MiFID II
world,” he says. “Trading venues
with good quality liquidity, low
toxic flow and high fill rates will be
the winners. With more data now
informing the buy-side of costs,
price reversion and fill rates it
will be hard to argue against using
those venues.”
The overriding issue will be
genuinely proving best execution
under MiFID II and within that
there are various characteristics,
but market participants generally
agree cost of transactions will be
a key one. There is more onus on
banks and dealers to prove they
are also finding the best bid and
offer spread alongside liquidity, so
if a trading venue can offer these it
Cost will be the determining factor
above anything else but you have to
have the liquidity…
- ALASDAIR HAYNES, FOUNDER AND CEO, AQUIS EXCHANGE
will be hard for dealers not to route
orders to that exchange. With
this in mind, trading venues like
Aquis Exchange should be rather
successful in 2018 and it isn’t just
Haynes who believes the venue
will thrive under MiFID II.
Horan explains: “It is a really
good model and very innovative
to come up with the subscription
based pricing. The decision to
shut out predatory and aggressive
trading activity has also worked
in their favour. We analyse a lot of
the data and it’s a fact that Aquis
Exchange is one of the very lowest
in terms of price reversion and
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