Systematic internalisers (SIs) operated by market makers in Europe under MiFID II seem to be winning over market participants after reaching record market share in February, according to an analysis by TABB Group.
Total daily notional among the six electronic liquidity provider (ELP) SIs that regularly report volumes to TABB Group reached €1.45 billion in February this year, the highest level to date, compared to €1.12 billion in January.
According to the data, Tower Research Capital was the largest ELP SI in February with an average daily notional of €372 million, followed by Jane Street, Citadel Securities, XTX Markets, Hudson River Trading and Virtu Financial.
“By our estimates, ELP SIs now account for around 18% of total addressable SI volume, nearly 50% of all SI activity beneath the large-in-scale thresholds and 2.4% of total market volume,” said Tim Cave, analyst at TABB Group and author of the research.
Systematic internalisers were first introduced under MiFID, but grew in popularity following the closure of broker crossing networks (BCNs) as part of the revised directive. TABB Group estimated that approximately 13% of addressable equity trading activity in Europe is now conducted through SIs, compared to less than 1% before MiFID II was introduced.
MiFID II also placed restrictions on dark trading through double volume caps, which encouraged market participants to adopt the use of SIs, and other recently emerged venues such as periodic auctions.
“The lion’s share of this SI activity is above the large-in-scale thresholds and conducted, one would assume, by the global investment banks. However, a growing proportion is being conducted through SIs run by ELPs, cementing their position as major participants in Europe’s equity market,” Cave commented.
“Initially, it was never envisaged that electronic market-makers would run SIs, but many were attracted to the regime following the closure of BCNs and because it allows them to distribute their capital without incurring exchange fees.”
In October, The TRADE sat down with Citadel Securities, Liontrust Asset Management and Jefferies, to discuss how the industry has adapted to using ELP SIs since they were introduced. In-depth evaluation and analysis of the ELP SIs available in the market was deemed critical for brokers and buy-side traders navigating the new trading landscape.