The majority of European buy-side
traders are not confident MiFID II will improve the quality of markets and they would welcome further consolidation among European trading venues.
A survey on dark pools and
European regulation by agency broker CA Cheuvreux revealed many buy-side
firms had negative views of market microstructure, with only 26% holding the
view that measures included in MiFID II would lead to an improvement.
Rules included in MiFID II
contain the introduction of a harmonised tick size regime across European
trading venues, a ban of maker-taker pricing, a new framework for broker’s
internal crossing networks – which currently operate under the guise of OTC
trading – and a number of high-frequency trading curbs.
Around 78% of respondents
believed maker-taker pricing structures created conflicts of interest, with the
same percentage in favour of regulation on tick sizes. Moreover, 73% believed there needed to be more research into the types of OTC equity trades conducted and only 30% were in favour of imposing
exchange-like regulation on dark pools.
Furthermore, 68% of those
questioned thought the ideal number of European trading platforms was less than
five – far less than the number of domestic exchanges in the region.
Looking at dark pool trading
practices, half of those surveyed said they asked for flow not to be directed to
specific dark pools and 73% said their reasons for using non-displayed venues did not include market volatility.
major unintended consequence of MiFID was widespread fragmentation and the
explosion of high-frequency trading. What is now certain is that client
business represents a much smaller percentage of market turnover than it did
five years ago with, in some markets less than 20% of primary order book volume
in main index names being institutional investor flow," said Ian Peacock, global head of execution
services at CA Cheuvreux. "With
the MiFID II review currently underway, dark pools are one of the major topics
under scrutiny. Institutions are concerned about the complexity of this new
trading landscape and do not feel the proposed regulatory changes will address
or help to solve their concerns."
agency broker polled 50 representatives from buy-side trading firms representing a broad range of assets under management.
CA Cheuvreux is currently the subject of a takeover bid from Kepler Capital Markets in a deal which would create an equity
broker focused on continental Europe with sector and country research covering
650 stocks. A spokesperson for CA Cheuvreux said the deal was on track to be
completed in mid-February.