Equity & non-equity OTC trading under MiFID II

Trading - evolution and revolution

Both equity and non-equity trades have new MiFID II requirements. The effect on equity trading is evolutionary, continuing the rules MiFID I put in motion in 2007. However, as transparency rules move into the more traditional OTC space, new and different dimensions will need to be considered when deciding a trading strategy.

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Non-equity trading

MiFID II extends transparency into new assets classes, while the currently private dialogue between two parties will now take place in public venues.

For the buy-side, seeking liquidity in a transparent market brings opportunities for the trader to leverage the new information available, but additional market impact risks as well by potentially exposing trading intentions.

More fundamental – and less predictable – will be the broader impact on market liquidity, with the result that you may need to find new sources of liquidity.

A new trading ecosystem

Agency execution models, all-to-all platforms, smarter order routing and liquidity seeking networks, tools and techniques continue to emerge and gaining visibility and connectivity to these sources will be important factors in supporting the new trading ecosystem.

Assuming you have access to new data and the ability to make use of it, you will have the opportunity to benefit from improving price discovery and new trading signals in both liquid and less liquid instruments. But traders will need to be aware of the signals that they send to the market and in what circumstances so it will be important to understand how to leverage the transparency thresholds when working orders.

Experience and infrastructure to support you at every phase

We have the breadth of experience and infrastructure necessary to support a changing market place. We are committed to providing total market visibility, incorporating and aggregating available quotes and post-trade data from as many existing and new trading venue sources, approved publication arrangements and quote feeds directly sourced from the relevant Systematic Internalisers as practical.

Dealer-to-client and multi-bank platforms will also have to formalize their status as multilateral trading facilities and FXall platform will join Thomson Reuters Matching as an MTF, which will mean an upgrade on surveillance and verification of the operational rigor that we already employ for all our services.

Eikon will be updated with new aggregated market views, tools and analytics to monitor cross-market activity into asset specific templates on the desktop building on existing market leading tools that visually summarizes activity across markets.

DataScope will also provide access to key MiFID related Instrument data allowing buy-side traders to make fully informed decisions including MiFID liquidity status and the various threshold size limits that determine the transparency obligations and trading mandates of each individual instrument.

Equity Trading

For both the sell-side and buy-side, trading in equities markets changed significantly under MiFID I. It drove changes that included the arrival of a number of new cross-border trading venues, the expansion of algorithmic trading, dark pool trading, and the trend towards fragmentation and much higher frequency but smaller sized trades.

Buy-side dealing desks also took much greater control over the execution process than ever before, taking advantage of the electronic trading tools provided by brokers, vendors and other market participants, including algorithmic trading, DMA, liquidity searching & aggregating smart order routers and innovative new platforms for block trading.

The evolution of equities trading

MiFID II will continue this process of change for the equity markets but most likely in an evolutionary manner.

Sourcing liquidity will continue to be a key factor, driven by smart order routing and increasingly sophisticated algorithms but also Indication of Interests (IOIs) and new block discovery tools.

The new controls imposed on dark pool trading through double volume caps and targeting of broker crossing networks in their current form will impact a number of venues and the liquidity profiles of many instruments, placing new demands on traders, their electronic tools and the market data needed to drive them.

The data and tools you need, already in place

Thomson Reuters remains fully committed to bringing together as many new data sources as needed – whether new trading venues or new data from existing markets. And to deliver them via the Elektron Real Time data feed or displayed on the Eikon Desktop.

Thomson Reuters Eikon already provides cross market liquidity views for individual equities with both the consolidated .x RIC, providing a pan European Best Bid/Offer and Time and Sales, and the Blended Order Book object, providing a customisable view of the cross-market order book. Views will be updated with transaction volume data so traders and systems can track when instruments get close to volume caps that prevent dark pool trading.

In addition, Eikon also provides access to the Thomson Reuters European Market Share Report, an on-demand reporting tool that provides historical insights in how individual instruments have been traded across Europe, while Thomson Reuters Autex continues to provide the ability to access and interact with sell-side Indications of Interest and Trade Advertisements over its global network.