Duncan Higgins, head of electronic products at ITG, said using a machine learning approach in the broker’s implementation shortfall algorithm in the US has been a ‘game changer’.

Higgins told Markets Media that the industry needs to finish with MiFID II changes and move to business as usual, with reinvestment in algorithms and infrastructure. MiFID II regulations went live in the European Union at the start of this year after a multi-year investment and implementation process. He added that ITG has a big program of work including changing its implementation shortfall algorithm to use a machine learning approach.

“The algo is much less constrained in its decision making and uses the state of the market and past experience to decide on the best approach to execute an order, determining how much and how to trade across lit and dark markets and auctions,” said Higgins. “IS AI has gone live in the US and has been a game changer through improving execution by a very significant 2.3 basis points.”

He continued that ITG is beta-testing IS AI in Europe and should roll out to clients in the third quarter of this year.

Higgins is also one of the authors of a new ITG report, Venue Landscape Shifting Under MiFID II, analysing changes in equities trading since the regulation went live and the double volume caps, which are intended to boost volumes on lit venues, have come into effect. The study found that overall there has been an increase in lit trading from 91% to 95%.

The first volume caps, published in March by the European Securities and Markets Authority, suspended more than 750 stocks from being traded in dark pools for six months as they exceeded the limit of 4% of total volume on a single venue in the past 12 months and 8% combined across all EU dark pools.

“For algorithmic trading in capped stocks there was a big shift with lit volumes going from 57% to 78% which should please policymakers,” added Higgins. “The use of the new alternative venues will increase over time as there is greater algo adoption of LIS, periodic auctions and systematic internalisers.”

Large-in-scale trades above a specified size and trades in periodic auctions on lit venues are both exempt from the caps, so their volumes have risen and are expected to continue to increase.

However, MiFID II puts greater emphasis on best execution and firms now need to take all sufficient steps, rather than all reasonable steps, to obtain best execution and evidence this process. It is unclear whether the the increase in volumes on lit venues has resulted in a better outcome for end-investors.

“More analysis on execution costs is needed but from anecdotal feedback, it appears to have worsened,” said Higgins. “Clients who have to trade large orders gradually say they’ve experienced higher impact costs, but those who can trade blocks have found the market more efficient.”

Tim Cave, an analyst at consultancy Tabb Group, said in a blog this week that the equities liquidity landscape is now truly different under MiFID II:

April was a milestone month for MiFID II in many ways – the first full month with dark pool caps in effect and a first look at those RTS28 top five venue reports. Who is coming out on top? https://t.co/vVey6GAUfG via @TabbFORUM

— Tim Cave (@_TimCave) May 8, 2018

Cave said dark MTF activity has settled at 5.7% of daily order book notional, compared to around 9% pre-MiFID II, while lit primary exchanges have seen a small uptick in market share, to around 54% from 52% pre-MiFID II. He continued that LIS trading activity accounted for 48% of dark MTF activity last month, or €1.3bn ($1.6bn) on a daily basis, compared to 17% and €775m respectively a year ago.

“Turquoise – which operates a dedicated block platform in alliance with the Plato Partnership – is now Europe’s biggest dark MTF, while block specialist Liquidnet is the fourth-largest dark MTF, having been in sixth spot pre-MiFID II,” added Cave.

Periodic auctions accounted for just under 2% of daily order book notional during April, or €913m, on a daily basis according to Cave. He said: “This growth has been led by Cboe Europe’s platform, but similar venues run by Turquoise, Goldman Sachs, Nasdaq and ITG are also enjoying increases in activity.”