Conditional orders and periodic auctions come out on top post-MiFID II

When it comes to seeking liquidity under MiFID II, a survey of senior traders has found that periodic auctions and conditional order types are the most useful.

The use of periodic auctions and conditional order types are helping senior buy-side traders navigate liquidity post-MiFID II more than any other technique or strategy, according to WBR Insights.

A survey of 100 heads of trading across Europe at the end of last year found a majority of 77% agreed that periodic auctions provide better access to liquidity amid the double volume caps (DVCs), more so than block trading platforms, request for quote (RFQ) venues or systematic internalisers.

Widespread adoption of periodic auctions has been an unforeseen trend since MiFID II was implemented. Traders concur that despite regulatory concerns that the venue type is in some cases used to circumvent the dark trading rules, periodic auctions are beneficial in terms of showing natural liquidity, reducing costs and achieving best execution.  

In January, responses from the market on the European Securities and Markets Authority’s (ESMA) extensive research on periodic auctions revealed that the majority of trading firms oppose any further regulatory intervention on the venues.

At the same time, the research from WBR Insights also found a majority of 76% of senior traders agreed that conditional order types have become the most important trading strategy for navigating liquidity post-MiFID II, followed closely by algo wheels and liquidity-aggregating algorithms.

Conditional orders have risen in popularity in response to MiFID II’s limitations of dark trading. They allow firms to trade as usual, but when an opportunity to trade a large block arises, it can withdraw other orders allowing traders to take advantage of the large-in-scale (LIS) waiver.

“What’s clear here is not necessarily what order types are more frequently used (although it’s no surprise to see conditional orders top of the tree) but, the fact that the vast majority of participants have actually changed the way they trade in order to comply with best execution requirements, and make best use of the tools available to them to source fragmented liquidity,” Salvador Rodriguez, head of electronic trading at Instinet Europe, commented on the results.

MiFID II has also caused a shift in buy- and sell-side relationships, with WBR Insights’ report revealing that just 5% of respondents have not materially changed the brokers that they use. On the other hand, a significant 63% of senior traders said that they have now taken more routing and best execution decisions in-house.

“The ownership to the buy-side is evident with the results here. In particular, routing decisions has been the priority,” Susie Benaim, TradeTech Europe conference director, commented. “Given the development of smarter algos and better SORs (smart order routers), the ability to monitor these more complex trades has improved as well as the reporting ownership heightened.”