MiFID II: Fostering innovation or stalling creativity?

The times for equity trading in Europe are indeed a-changing, but will uncertainty over incoming rules stall creativity for would-be trading venues?

The second iteration of European markets regulatory doctrine MiFID might not spur the sort of multilateral trading facility (MTF) explosion its predecessor achieved, but it has already begun shaping the region's trading ecosystem.

This week a promising venue concept was given indefinite gardening leave, and the technology underlying it snapped up by a leading provider. Social networking-inspired MarketBourse would have let trading participants choose the pools and counterparts they wanted to interact with - a concept widely welcomed by the industry - and its talismanic leader Tony Mackay (of former Chi-X Europe fame, before its sale to BATS Global Markets) has nodded in the direction of Brussels as to why the venue has stalled.

Although MiFID II has just entered the final stages of its development - where the European Parliament and Council negotiate a final text, key differences such as rules on waivers that drive flow onto dark pools and the details of the organised trading facility venue category remain out of reach.

Venue innovation, it seems, may emerge in spite of, rather than because of, Europe's new market rules.

Another of the Chi-X Europe alumni, Alasdair Haynes, continues to press ahead with his Aquis Exchange, aiming for an October launch. The venue has borrowed the tiered subscription model used widely in telecommunications for its pricing. Depending on trading volumes, sell-side participants would pay significantly less on the system at a time of depressed trading commissions, with a flow-on effect for the buy-side.

Haynes' has also rejected traditional sell-side investment into the venue that has traditionally occurred with MTFs, such as BATS Chi-X Europe, under which brokers own a stake to have a seat at the table.

But whether Haynes, and any other new entrants can grow Aquis into a venue to challenge the now dominant BATS Chi-X Europe is far from clear. The experience of established MTFs such as Equiduct - which recently underwent an ownership restructure and reduced its pricing to reverse slipping volumes - indicates the challenges in attracting liquidity remain significant.