[ A D V E R T O R I A L ]
The shifting liquidity
landscape post-MiFID II
The TRADE speaks to Mark Pumfrey, head of EMEA at Liquidnet, about
the shifting liquidity landscape under MiFID II, covering the introduction
of the double volume caps on dark trading, the new SI regime, the
growth of periodic auctions, and what this means for liquidity.
What have been the major changes
under MiFID II so far?
Mark Pumfrey: Not an awful lot
has changed as things stand today,
in that there hasn’t been any sig-
nificant shift of liquidity back into
the lit markets, which may well
cause further regulatory scrutiny.
Although, to be fair, the dark vol-
ume caps (DVC) will cause further
changes that aren’t 100% clear at
this stage.
The things that have changed
have been the continued evolution
of large-in-scale (LIS) trading as a
percentage of the dark MTF world,
which has been a rising trend for
some time and up to the point the
DVCs were implemented LIS was
at just under one-third of dark
MTF trading, up from around 5%
about 18 months ago. There’s been
a significant shift to take advantage
of the LIS exemption, which will
continue now that we have DVCs
in place with LIS currently above
18 // TheTrade // Spring 2018
40% of Dark MTF trading.
There’s also a shift of liquidity
towards the periodic auctions;
relatively small pre-DVCs, I think
the number was around €40 mil-
lion a day prior to the beginning of
the year increasing to something
like €350-400 million per day, so
running into the DVCs we saw
quite a big pickup on 12 March.
Post the DVC implementation, we
have seen this trend continuing to
above €600 million, so it looks like
a decent number of the below-LIS
business in capped stocks is going
to head towards these venues as a
way of doing that business.
What trends do you expect to see
either continuing or emerging going
forward under MiFID II?
MP: I think we’ll see a continuation
of the growth of LIS trading. We
certainly know that institutions are
keen to find large liquidity in the
dark and have that size discovery
process protected. LIS is the obvi-
ous way to do that.
The constraining factor is LIS
match rates, and from our per-
spective we’ve seen a significant
continued increase in average daily
liquidity on Liquidnet’s platform,
which is up approximately 20%
this year to around $28 billion of
liquidity every day in European
instrument types.
That in itself has significantly
increased our match rates which
is the key; our match rates this
year are in the 20-25% range,
whereas two years ago they were
around 16%. So, we are seeing
more liquidity, and more diverse
contra breadth in our pool. That’s
been an important factor to grow-
ing our LIS business and I guess