June 15, 2017

There has been a lot of scare mongering about the impact of the double volume caps coming into effect under MiFID II, but investors are still in the dark as to what the actual impact will be. While there are various initiatives flowing onto the market, solutions also may be right under their noses in the shape of more innovative transparent lit markets.

Ever since MiFID I, dark pools have become a popular feature on the trading landscape, rising to around 9 percent of the total European market from less than 2 percent in 2010, according to numbers crunched by trading technology company Fidessa.

Many individual stocks have a double-digit proportion of their trading volume in dark pools. The constituents of the FTSE are a case in point. A study, conducted last year by the London Stock Exchange, showed that if the 4 percent cap on a single venue and 8 percent limit across all venues were applied in 2014 and the first half of 2015, then the entire index would be unable to trade in the dark for six months after the cap came into force.   

Exchanges have seized the opportunity to develop a plethora of new ventures on the large-in-scale and block trading front.  While creativity is always good for an industry, one could also argue that 90% of the effort seems to be going into a fraction of the overall trading flow. There is of course no free lunch and these platforms come with their own set of problems. For example, large blocks can prove difficult to match.

Investors may not have to look too far though for a cost effective approach and deeper trading pools. Newer, shinier, yet proven MiFID II compliant Aquis Exchange, for example, already offers a transparent and proven model. It challenged the status quo from day one with its new subscription pricing model and has continued to buck the trend with a curb on aggressive non-client proprietary trading.

However, despite being on the cutting edge, Aquis has built its business on some old fashioned beliefs. That tried and tested tenet – liquidity begets liquidity – can certainly be heard reverberating in its hallways.

by Lynn Strongin Dodds