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Could you please define the trading venues and platforms (MTFs, OTFs and Sls) and the regulatory intention of each?
 
The Trading venues under MiFID II are as follows;
• Systematic Internaliser (SI) is a bilateral discretionary model that was present under MiFID which is extended to all financial instruments. There was not much take up under MiFID. Many firms deemed that their activity didn’t fall into the category. This is set to change under MiFID II/MiFIR requirements. The regulators aim to substantially limit the ability of firms to trade equities on a “pure” OTC basis and drive trading onto rule based venues or transparent SI execution.
• Multilateral Trading Facility (MTF) A non-discretionary venue that was available under MiFID and is further clarified under MiFIR to bring alignment with the rules of a Regulated Market (RM). This venue type is also extended to cover non-equities.
• Organised Trading Facility (OTF) introduced under MiFID II specifically for the use of Non-Equities. The expectation is for OTF to replace BCNs (Broker Crossing Network). OTF allows discretion and matched principal trading where an MTF or RM cannot.
• Cross Asset firms should consider that an SI & OTF cannot be operated from the same entity. 
 
Intentions
Extended Asset class coverage
• Post MiFID II/MiFIR, transparency requirements that today cover liquid shares will cover also derivatives eligible for clearing or traded on RM/MTF/OTF or reported to trade repositories 
 
Transparency
Pre-trade transparency requirements 
• All RMs/MTFs/OTFs must publish pre-trade information 
• SIs must make firm quotes (below certain size) 
Post-trade transparency requirements 
• RMs/MTFs/OTFs/SIs all subject to reporting requirements subject to certain thresholds and delays
 
How are the new platforms and venue definitions impacting the venue landscape?
 
There is a growing number of competing exchanges in the derivatives space, given the current drive towards futurisation and OTC clearing. FX venue LMAX is a developed MTF that took the direction of travel early before MiFID II and firms like ICAP are going to set up as OTFs under MiFID II.
Existing venues are looking to broaden their remit given the cross asset nature of MiFIR/MiFID II vs MiFID. The market has seen several recent acquisitions by equities trading platforms of venues in other asset classes. BATS Chi-X acquired Hotspot FX and ITG bought RFQ-hub, a multi-asset platform for global listed and OTC derivatives. Liquidnet, the buyside to buyside block crossing network, acquired bond trading platform Vega-Chi in March 2014. 
 
Where do banks fit in and what are the requirements of the platforms?
 
There will be many firms in reactive mode and many in proactive mode trying to make opportunities out of the evolving landscape.
 
RFQ models are for example feeling the pain as the transparency requirements could significantly impact what is an effective model for less liquid instruments.
 
Investment firms that previously deemed they were not SI, but now will be, need to assess the instrument base they trade against the quantative thresholds of the SI regime. Monitoring will be required on an instrument level over the pre-defined period whether to see if they hit the thresholds. If they do then the pre and post transparency requirements are a significant piece of work.  In addition to monitoring there are requirements for disclosure of quotes in the required format and reporting of trades in real time.
 
Some Investment firms are looking at business models and trying to decide if they think their business model would be better as an SI or an OTF. Assessing these models is a huge strategic decision making process based on; the instruments they trade, the capacity in which they trade them, the client base they have, the must do’s vs could do’s and guessing where the regulators will ultimately go in the future.
 
How is OTC non-equity instruments impacted by MiFIR?
 
MiFID II/MiFIR introduces a requirement to trade eligible derivatives on qualifying exchanges/platforms (i.e. RMs, MTFs and OTFs and some non EU venues) but not SIs. The Scope of 'eligible derivatives' is derivatives that are admitted to trading or traded on a trading venue (RM, MTF or OTF) and that are sufficiently liquid may be declared by ESMA as subject to the mandatory trading obligation. This links to EMIR as mandatory trading obligation requires mandatory clearing obligation. ESMA have a consultation out currently on this topic.
 
The uncertainty of ‘equivalent to what is traded on a trading venue’ is causing derivatives brokers a headache. Is the OTC instrument they trade deemed equivalent to an instrument traded on a venue or not? Clarity on this topic and attention by the regulator is required.
 
What would you like to achieve by attending the Best Execution and Transparency under MiFID II?
 
I would like to hear all the other speakers discuss their specialist topics and provide real word insights into the practical application of the regulation. I believe that open dialougue between the attending firms will give everyone a chance to hear new perspectives and ways in which Best Ex & Transparency can be tackled.
 

 

Ahead of the Best Execution and Transparency under MiFID II conference, we spoke with Mrs. Rachel Prybylski, Head of Market Structure at Saxo Capital Markets about the new trading platforms and venue definitions.
 

 

Practical Insights From:
  • Fabio Braga
    Trading Venues Policy
    FCA 
  • Jasper Jorritsma
    Senior Policy Advisor
    Autoriteit Financiele Markten 
  • Paul Kinghorn
    Head of Regulatory Developments for Financial Markets
    Lloyds Banking Group 
  • Werner Schorn
    Project Manager MiFID II
    Erste Group 
  • Chad Giussani
    Head of Transaction Reporting Compliance
    Standard Chartered Bank 
  • Rajeev Mehta
    Global Head of Compliance
    ABN AMRO Clearing Bank 
  • Matthew Coupe
    Director of Market Structure

About the conference:

This marcus evans conference will examine and make clear exactly what MiFID II is demanding of firms, and its impact upon wholesale markets as a whole. This conference will assess best execution definitions and requirements, and show through peer led sessions how you can set yourself up to know what to report and to who and ensure your commercial policy is in line with the latest requirements. The Best Execution and Transparency under MiFID II conference will take place from the 21-23 November 2016 in Marriot West India Quay, London, United Kingdom.

 

 

Copyright © 2016 Marcus Evans. All rights reserved.

Previous Attendees Include
  • ABN Amro Bank
  • AFME
  • Banca Akros Spa
  • Bank of America Merrill Lynch
  • BNP Paribas
  • Central Bank of Ireland
  • Citi
  • Commerzbank
  • Deutsche Bank
  • Erste Group
  • Federal Association of Securities Trading Firms
  • FIA European Principal Traders Association
  • HM Publishing ltd
  • HSBC
  • Investment Management Association
  • Mitsubishi UFJ Securities
  • National Bank of Abu Dhabi
  • Netherlands Authority for Financial Markets
  • RBS
  • Santander GBM

About the speaker:

Head of Market Structure for Saxo Capital Markets UK Limited. A market regulation and market microstructure change specialist. Responsible for communicating the commercial impact cross asset class, assisting management and internal trading teams to position the business in light of the future regulatory landscape.

 

Understanding the trading platforms and venue definitions

 

 
 

 

An interview with Saxo Capital Markets

Rachel Prybylski,
Head of Market Structure
at Saxo Capital Markets

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