Euronext is preparing for the new regulatory environment by selecting Strategic Insight’s LiquidMetrix as the pan-European exchange’s best execution analytics platform across asset classes as fund managers adapt to lower market liquidity.

The exchange said in a statement that it has selected Strategic LiquidMetrix  for best execution, transaction cost analysis and surveillance services for its equity, exchange-traded funds and derivatives.

Lee Hodgkinson, head of markets and global sales at Euronext, said in a statement: “Our clients are facing significant challenges in demonstrating how best execution is achieved in an increasingly complex market environment. LiquidMetrix’s expertise in European market structure will play an important role in achieving this goal and we are delighted to be partnering with them.”

MiFID II, the incoming regulations covering European Union financial markets from January 2018 will change market structure by introducing new types of venues. In addition fund managers will be required to provide more evidence to their clients of how they tried to achieve best execution across a range of asset classes, not just equities.

Henry Yegerman, LiquidMetrix global head of sales, Strategic Insight, said in a statement: “We have enhanced our best execution platform to meet all the current and upcoming regulatory and business intelligence requirements of our clients.”

MiFID II will introduce pre-trade and post-trade transparency requirements across asset classes that could also impact liquidity. Nearly half, 48%, of asset managers in a survey from State Street and the Alternative Investment Management Association said that regulatory changes and the low rate environment have already reduced market liquidity as banks have decreased market making.

Lou Maiuri, executive vice president and head of State Street’s Global Exchange and Global Markets businesses, said in a statement: “The new liquidity paradigm is causing many players in the investment industry to think again about the fundamentals: what roles they play, where they invest, and how they transact their business.”

As a result 48% of survey respondents said lower liquidity is encouraging them to use these electronic trading platforms in credit markets as well as in equities. Euronext is launching a new fixed income electronic trading platform next year.

David Stewart, head of UK pensions solutions at Santander Asset Management, said in the report: “These platforms are very important in helping participants find the actual sources of liquidity. Electronic platforms may not generate more liquidity, but they make liquidity easier to find.”

The survey said Increased data transparency will improve market quality for liquid assets by increasing competition, broadening market access and reducing dependence on traditional market makers.

“But electronic trading may not be the appropriate solution for all securities – particularly illiquid securities, which could suffer from information leakage. For these securities, as a recent Bank for International Settlements report found, there’s still a role for bilateral dealer-client relationships,” said the survey.

In addition to selecting Liquidmatrix, Euronext is also adapting to the changing trading environment by establishing a new quant research function, to strengthen its analytical capability and help clients gain insights into their trading behavior.

This month Euronext also introduced Best of Book, which provides an additional layer of liquidity for retail flow within the central order book. Trading takes place through retail brokers’ existing connections and allows liquidity providers to compete on quotes that are placed at or better than the European best bid and offer, and orders that are not matched against these quotes are immediately executed against the central order book.

Hodgkinson said: “By launching Best of Book, ahead of MiFID II, we will deliver benefits of competition to end investors in a fair, competitive, transparent and highly regulated environment.”

More on best execution: 

• Euronext and Algomi Look to Deepen Bond Liquidity
• UK Equity Execution Costs Fall Over Three Years
• Will an Exchange Acquire an IBD ?