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transparency and to encourage
more on-book activity and encour-
age business to migrate back to
primary markets. In many respects,
this aim is the opposite of MiFID I,
which focused more on encourag-
ing competition in where you can
transact business by removing the
concentration rule.
Unfortunately, when we think
about best outcomes for the end
investor and knowing the diverse
nature of the business that we have
to manage, putting business on a lit
exchange is not necessarily going
to achieve those goals. That’s why
we’ve seen the market develop and
evolve alternative mechanisms for
getting business done, albeit within
the confines of the current regula-
tory framework.
When we think about periodic
auctions and LP SIs, it was relative-
ly telegraphed ahead of MiFID II
that we would start to see alterna-
tive liquidity opportunities arising
to provide different methods of
executing client business, so there
shouldn’t really have been any ma-
jor surprises here. That said with
the primary markets maintain-
ing, but not growing, their share
of market, a key objective of the
regulator has not been met, which
explains, despite the modest shift
in liquidity, the ongoing regulatory
scrutiny.
The use of periodic auctions was
really initially established as more
of a hedge to the double volume
cap regime on dark trading. How-
ever, it has become quite a useful
way in which brokers can out-
source some of that BCN liquidity,
providing natural client matching
opportunities, which they had pre-
viously internalised. Now, where
we have to outsource that business,
one way to do that is to execute in
a periodic auction, where because
of the timing mechanisms, and
in part because of the ability to
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utilise broker preferencing logic,
you have the chance to match that
client-to-client natural liquidity.
And when we look at the perfor-
mance, the periodic auctions are
providing a useful platform to do
that business.
Have there been any other drivers
impacting on EMEA market struc-
tures since the introduction of
MiFID II?
JB: Whether we like it or not, a lot
of the changes around us in respect
to market structure and innovation
have really been driven by regula-
tion. What is quite useful for us is
that our end clients are certainly
much more focused on broker
performance and best execution,
in part because the landscape has
become even more fragmented and
complex.
On top of that, when you consider
the obligations that are now be-
stowed upon the buy-side, it really
does mean that the sell-side have
to sharpen their focus to make sure
they are providing that level of ser-
vice, that degree of transparency to
enable the buy-side themselves to
provide the end investor with the
best service they can.
Looking ahead Brexit remains
the great unknown but depending
on the direction of travel there
will clearly be impacts on market
structure beyond MiFID II. Al-
ready we have to consider impacts
of the Share Trading Obligation on
liquidity dynamics in a post Brexit
scenario.
“What needs to play out is that consolidation
of liquidity; it is something that is well-
discussed, but actually we haven't necessarily
seen some of those brokers as negatively
impacted as some might have you believe.”
How is Citi addressing changing
buy-side requirements as market
structure complexity increases?
JB: We are making strategic in-
vestments and building resources
to help our clients navigate the
market complexity, particularly in
respect to our Execution Advisory
Service, where we have a dedicated
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team focused on optimising trading
performance.
This is a crucial area to help our
clients optimise the performance
and outcomes based on the bench-
marks that clients are looking to
achieve.
The other area of focus is around
rebuilding and recalibrating our
algo offering to take advantage of
those new liquidity opportunities,
whether it is adding new condi-
tional venues to get more electron-
ic block business done or whether
it is ways in which we measure and
review the available LP liquidity
for some of the more aggressive,
cross-spread type liquidity where
investors are happy to interact with
that type of flow.
How do you see the relationship
between the buy- and sell-side
evolving from its current state?
JB: The buy-side and sell-side are
getting closer, particularly as our
clients look for more innovation
around liquidity access. When you
think about the pace of this change,
I would look back to MiFID I with
the fragmentation of liquidity and
the proliferation of BCNs. That
didn't really happen in the first
year; it took a good period of time
to develop and I think that's proba-
bly what we are seeing here.
At Citi we are taking a number
of steps to adapt our platform
and offering as the market struc-
ture evolves. One area of focus is
on how we provide access to our
house inventory to meet client li-
quidity needs. But more so, how
do we do that in an efficient way
through the electronic channel
in addition to the more tradition-
al high-touch DCA block or IOI
routes.
The evolution here is more about
understanding the needs of the
client. When you think about the
diverse nature of the flow that we
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