MiFID II To Boost Lit Volumes

Shanny Basar

Mark Hemsley, president of Cboe Europe Equities, formerly known as Bats Europe, said new regulations next year could boost volumes on lit venues in the European Union.

CBOE Holdings, the US options exchange, acquired equities and foreign exchange marketplace Bats Global Markets this year, and the merged company has now been renamed Cboe Global Markets.

Hemsley said at a media briefing in London that the merger allowed the cross-selling of foreign exchange and equities to global asset managers. “We have been following a whole set of new leads,” he added.

In addition trading in Cboe volatility products in European hours has risen 70% from a year ago.

He continued that in the European Union, MiFID II will bring drastic changes when the regulations come into force on 3 January 2018. MiFID II prohibits broker crossing networks and instead requires all firms committing capital to trades to use systematic internalisers.

EU authorised investment firms will be classified as SIs for a financial instrument where they deal on their own account, over the counter, on an organised, frequent and systematic, and substantial basis in that instrument. These thresholds are based are on trading data for individual instruments which are set by the European Securities and Markets Authority. There will also be volume caps on trading in dark pools.

“Broker crossing networks will disappear and volumes will grow on systematic internalisers,” said Hemsley. “There will be more volumes on lit venues as volumes move from BCNs and dark pools but SIs could also take away lit volumes.”

Hemsley expects to see two types of SIs under MiFID II – pure market makers; and trades where banks have committed capital.This month, XTX Markets, an equities liquidity provider, said it intends to  opt-in as an SI under MiFID II, despite uncertainties about the potential market impact of the SI regime. Cboe Europe Equities will be XTX Markets’ SI technology provider.

Alex Gerko, co-chief executive of XTX Markets, said in a statement: “Market participants will benefit from the high-quality liquidity we provide, as they already do in foreign exchange. We are committed to maintaining our lit venue presence as ultimately we see lit central limit orderbook as the best market structure for liquidity providers and consumers.”

As a result of the changes in market structure caused by MiFID II, Cboe Europe Equities has already launched Cboe Large in Scale, a block trading platform powered by BIDS technology, and a periodic auction.

The LIS platform operates under a waiver for large block trades from the MiFID II double volume dark pool caps. The waiver allows market participants to negotiate trades without the need for pre-trade transparency in order to limit market impact.

Hemsley said more than €10bn ($11.7bn) has executed on Cboe LIS since its launch last December. The platform had record volume last month with an average daily volume of €111m, a 61% increase over the previous month.

In February this year asset managers were given  direct access to Cboe LIS, instead of having to connect though a broker.  “Cboe LIS continues to expand and has more than 100 buyside firms since access was opened,” added Hemsley.

A periodic auction was also launched in 2015 to help trade in larger sizes. Trading in the periodic auction is in a lit book so the MiFID II dark volume caps do not apply. Auctions last a randomized time of between 100 milliseconds and five minutes, depending on liquidity of the individual stock.








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