[ I N T E R V I E W
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J A M E S
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
58 // TheTrade // Summer 2019
B A U G H ]
“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.”