Fundamental change in sell-side sales and trading
The impact of MiFID II will be so significant it is likely to change the sales and trading of some asset classes fundamentally.
Equities continue to evolve
Equities trading changed significantly under MiFID I, a process that will continue in an evolutionary manner under MiFID II.
Sourcing liquidity for example, will continue to be a key factor, driven by smart order routing and sophisticated algorithms but also indications of interest (IOIs) and block discovery.
The new controls imposed on dark pool trading will impact a number of venues and the liquidity profiles of many instruments, placing new demands on traders, their order routing algorithms and the market data needed to drive them.
Revolution in OTC trading
The impact of MiFID II on the Fixed Income, Currencies and Commodities (FICC) OTC markets is likely to be more revolutionary.
There are already a number of new initiatives and venues looking to address some of the existing structural issues in these less liquid markets.
In addition, existing markets will need to be formalised as Organised Trading Facilities (OTF) or Multilateral Trading Facilities (MTF) under MiFID II. These initiatives and trading venues, together with the changes imposed directly through transparency, new trading mandates and best execution obligations, mean that trading in FICC/OTC markets is going to change significantly.
Challenges and opportunities
Aside from the fundamental changes to the dynamics of RFQ risk pricing arising from pre-trade transparency, the post-trade transparency regime, under which anonymous trade details are made public, mostly in most cases in near-real time, will bring challenges and opportunities.
Market participants will have the opportunity to benefit from improving price discovery and new trading signals in both liquid and less liquid instruments. This will be balanced against the risk of increased market impact and exposure of trading positions and intentions that inevitably arise with the disclosure of trading activity.
Traders will need access to this new data and the tools and techniques to access liquidity, manage the changing risk profile of pricing and principal trading in a transparent market, comply with tighter market maker obligations and handle the platform changes driven by new derivative trading mandates.
We have the breadth of experience and existing infrastructure necessary to support a changing market place. Our own FXall platform joins Matching as an MTF, which will mean an upgrade on surveillance and verification of the operational rigour that we already employ for all our services. Our Electronic Trading (ET) platform will be enhanced to ensure Systematic Internalisers are compliant when trading with their clients.
And we are committed to providing total market visibility, incorporating and aggregating available quotes and post-trade data from existing and new trading venue sources, Approved Publication Arrangements and as many quote feeds directly sourced from the relevant Systematic Internalisers as possible.
These new data sources will be fully integrated into the existing Elektron Real Time market data feeds, as well as being displayed on the Eikon desktop. They will also be reflected in the intraday and end-of-day pricing available through DataScope Select.
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 summarise activity across markets.
We are already working closely with the exchanges and industry associations to understand their implementation strategies for MiFID II.
On the equities side:
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 customizable 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 our European Market Share Report, an on demand reporting tool that provides historical insights into how individual instruments have been traded across Europe, while Thomson Reuters Autex continues to provide the ability for brokers to publish indications of interest and trade advertisements over its global network.