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regime are obviously aware of the
regulator’s stance and the scrutiny
SI operators will be under to
ensure that they differ in import-
ant ways from the previous BCN
regime. There is going to be a lot
of scrutiny and there will be an in-
creasing desire for more transpar-
ency than the system has produced
so far, but the SI regime is and will
be an important source of liquidity
for the market.
The SI regime has been allowed
to exist because of the capital pro-
vision element, which is very im-
portant for markets. That does add
value over and above the lit market,
which is where the regulator is try-
ing to go, whether it is LIS trading
adding value over and above the
small sizing on lit markets and the
same thing for the SI regime with
regard to capital. for us to have a view how wide and
accessible that liquidity actually is
but I’m sure the regulators will be
looking at this.
Is the growth of the periodic auction
in line with your expectations going
into 2018?
MP: Absolutely. Periodic auc-
tions are seen as a place for the
beneath-LIS and dark activity to
occur, because they do have that
dark characteristic to them. The in-
vestment in periodic auctions from
some of the major operators has
been very clear that this is a strong
way forward for them. I would cer-
tainly expect the acceleration we
saw on 12 March to continue, be-
cause there is a significant amount
below LIS trading that needs to
find a home.
Periodic auctions fulfil a need
in the market to enable trading
in smaller sizes effectively in the
dark. I think one of the questions
the regulators will ask is about the
addressability of liquidity in the
auctions themselves; are they pre-
matched trades that are just getting
printed on a lit market? It’s hard How do you expect the regulatory
landscape to evolve going forward?
MP: It’s incredibly fluid and highly
complex. From a MiFID II per-
spective the regulators will allow
things to settle somewhat; we’ve
had major changes in January
and then again in March with the
DVCs. We all know there have been
problems with data, which is why
DVCs were delayed, but you must
take the data and really analyse
what’s going on properly to un-
derstand it, because with so many
inter-related matters, you can jump
to the wrong conclusions if you
move too quickly. I would expect
the regulators to let these market
structure changes bed-in, certainly
through the first half of the year,
before deciding on the actual
impact of MiFID II on European
markets.
It does seem to me that European
regulation is taking a global lead in
terms of driving best practices and
20 // TheTrade // Spring 2018
Growth of the LIS Market
Pre MiFID II
Post MiFID II
Post DVC
22%
78
29%
71%
44%
56%
0% 20% 40% 60% 80% 100%
Source: Bloomberg, September 2017 up to and including 13th March 2017
we are certainly seeing shifts in US
asset management adopting MiFID
II, because that is where they are
being driven by their end-custom-
ers and clients.
There are also some other inter-
esting nuances, not least around
Brexit. When it comes to trading in
the dark, I think it’s fair to say that
the FCA is more comfortable with
dark trading and understands the
institutional benefits of it in per-
haps a different way than European
regulators. Once the UK has left
the EU there may well be further a
change.
It’s interesting that most of the
stocks that are capped are UK
stocks, whereas the cap on stocks
on the Continent is much smaller.
There are many unknowable un-
knowns: things will certainly con-
tinue to evolve, but I don’t think
anyone right now can truly predict
the direction in which things will
go. With the rise in LIS and the
overall reduction in dark MTF
trading outside LIS the DVC may
be seen as redundant as the caps
will not be breached once market
structure has settled down.