Industry second-guessing over fixed income SIs

Fixed income pre-trade transparency and the number of instruments will see less firms opting in to become a systematic internaliser.

Tracking the status for firms identifying themselves as systematic internaliser (SI) in fixed income under MiFID II has become one of the more complex issues for market participants, according to industry experts.

Under the MiFID II regulation, broker-dealers will have to identify themselves as an SI to facilitate trading in fixed income and other asset classes.

However panellists at The Trade’s MiFID II: Best Execution event in Paris this week told delegates that tracking and mapping SIs has become more difficult in fixed income than equities, with some banks becoming increasingly evasive over their status as an SI.

Ashlin Kohler, director of global rates eCommerce fixed income, currencies and commodities (FICC) at Citi, explained that banks are struggling to become more automated for FICC.

She said: “We do not have an electronic compound, so how can we achieve this quickly and accurately for our clients?”

Kohler told delegates it is simpler for the sell-side to become an SI in equities, but fixed income has too many sub-classes and dealers will not be as willing to opt in due to further obligations.

“Unlike any other asset class, MiFID II introduces fixed income pre-trade transparency, and our market doesn’t work like that,” she said.

A member of the audience asked the panel whether the European Securities and Markets Authority (ESMA) would publish an SI list for the industry to know if the counterparty is an SI for FICC.

Rachel Hutchins, who is part of the trading solutions, compliance and regulation team at Bloomberg, answered that ESMA is required to publish this, although it may not be in a timely manner.

“At a FIX Community event, we discussed the idea of an industry utility that publishes the data. Waiting for ESMA’s list could be too late for many firms.

“Vendors and reference data providers will be consuming that data and so will be able to provide a utility for that,” she explained.