[ I N D E P T H | R E G U L A T I O N ] you ' re naturally going to have that parent order broken into smaller chunks and for some of those you would still want to benefit from some of the features that potentially SI liquidity can give you ,” adds Wicks .
FBA Transparency Proposed changes to FBA pre-trade transparency as part of the RTS 1 and 2 consultations – the results of which are still being deliberated - are even less welcome than the changes to SIs . The mechanisms were first introduced into the market as a method for participants to skirt the DVCs originally implemented as part of
MiFID II in 2018 . If a stock was capped , it could be traded in the lit market with a reference price . They rely on limited transparency pre-trade to function properly due to the inherent speed bumps within them .
RTS 1 and 2 have set out proposals to make these auctions more transparent . However , many have argued that the level suggested by European authorities could expose them to information leakage , which could ultimately leave participants subject to arbitrage strategies in the continuous trading market . ESMA has set out two potential new definitions for FBA transparency , with its preferred option allowing for the publication of individual orders prior to a match being identified . This is contentious as orders published in auctions must sit and wait for the auction to uncross for 100 milliseconds while the continuous trading market could act upon them .
“ FBAs – which share the same pre-trade transparency model and price-forming algorithms of Closing Auctions – create a level playing field and deliver huge benefits to institutional investors ill-equipped to execute in low-latency environments . It is abundantly clear that ESMA ’ s proposals to introduce additional pre-trade transparency will in fact entirely destroy the usefulness to investors of EUbased FBAs ,” says Nick Dutton , chief regulatory officer at
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