[ I N D E P T H | R E G U L A T I O N ]
trade transparency , including systematic internalisers ( SIs ) and frequent batch auctions ( FBAs ) which Europe has now set its sights on with its latest tweaks to the rulebook alongside additional limits to dark trading .
“ Most of us predicted divergence between the UK and EU 27 . MiFID II is all about getting liquidity back into the lit transparent environment . Whereas , on the UK side because of Brexit we ' re seeing a different political move , which is how do we liberate the UK in such a way to attract business to it ? That ' s a very different problem to solve ,” said Alasdair Haynes , chief executive officer of Aquis Exchange .
Successful lobbying from incumbent regulated markets has meant Europe has continued to favour transparent lit markets in its regulatory updates and if the UK ’ s stance diverges from this too dramatically in the coming months , then market participants could be left with a fragmented liquidity landscape and subsequent increased cost of trading to navigate .
“ These proposals have the potential to alter how people think about executing their order flow in the UK and Europe . I
“ It ’ s now these other things that have come up because of MiFID II , which is the FBAs and the SIs , which they now want to have a have a go at .”
GARETH EXTON , HEAD OF EXECUTION AND QUANTITATIVE SERVICES FOR EMEA , LIQUIDNET think most market participants would agree that there ' s a case to be made for more simplicity in market regulations and I think divergence doesn ' t help that aspiration ,” said Ed Wicks , head of trading at Legal & General Investment Management .
Into the light Among the changes implemented by the European Commission is the replacement of double volume caps ( DVCs ) with a single volume cap ( SVC ) of 7 %
“ Some of the market practitioners were hoping , naively or otherwise , that there wouldn ' t be so much divergence so quickly , but I think now that ship has sailed .”
JAMES BAUGH , HEAD OF EUROPEAN MARKET STRUCTURE , COWEN
across Europe in a bid to further reduce the amount of dark trading on the continent . This system replaced an 8 % cap on participants and 4 % cap on venues , which most agree was overly complex .
More specifically , the recent changes made by Brussels seem to be intent on driving small trade volumes back onto lit markets and are focused predominantly on anything below Large in Scale ( LiS ). According to data by Liquidnet ’ s Liquidity Landscape , the implementation of MiFID II at the beginning of 2018 saw the proportion of the dark market traded above LiS in Europe , the Middle East and Africa ( EMEA ) double from 20 % to 40 %. Regulators in Europe are now looking to make that percentage higher still .
Among its methods for doing so is the prohibition of alternative trading venues ( MTFs ) from using the reference price waiver to execute small trades in Europe , due to a new minimum threshold of two times standard market size . The changes are not the worst-case scenario for MTFs and dark trading in Europe , with many speculating that regulators intended to remove LiS thresholds for dark trading altogether . Whether this is something that is reconsidered later down the line will have to be seen .
“ Studies show that there is quite a lot of volume below that threshold that does currently occur
26 // TheTRADE // Winter 2021