Regulatory domino effect will lead to MiFID III
Larry Tabb, founder and chairman, TABB Group
The MiFID II reforms will change virtually every aspect of the equities business globally. European equity market structure will deteriorate within six months of go live as systematic internalisers (SIs) will trade against the more liquid equities directly leaving the exchanges to be the execution venue of last resort. Instead of 8% of European market liquidity being executed in the dark, the SI interaction rate will be closer to 30%. At a level of 20%, exchanges will mount an initiative to change the SI execution model – this will start MiFID III. Furthermore, algorithmic flow will become more competitive and traditional HFT type firms will enter this business and be very competitive. Execution value will likely migrate to blocks, capital and sourcing liquidity.
Regulatory worries nothing compared to political uncertainty
Alasdair Haynes, founder and CEO, Aquis Exchange
We are facing a very uncertain world in 2018. On the domestic front we have the Brexit situation to deal with and possibly elections in Germany and Ireland. On the wider international stage, the threat of ISIS has not been eliminated and there remains a big question mark over whether the US/North Korea war of words will escalate into an actual war. Against that background, the City’s angst over implementing MiFID II is almost comical. Having said that, for Aquis this is a critical piece of legislation and it makes me very optimistic for next year. It vindicates many of the things we’ve said in the past and how our deep liquidity, non-toxic flow and subscription pricing model makes Aquis the ideal exchange for those seeing to achieve Best Execution.
The year to focus on excellence
Mark Pumfrey, head of EMEA, Liquidnet
The spotlight in 2018 will be firmly on excellence – for both execution and research. What we have witnessed in financial markets to date is that too much average product and service has been allowed to survive and prosper. The transparency changes enforced as part of MiFID II will ensure an overdue move towards best-in-class survival. As accountability and control shifts to the buy-side in both equity and fixed income, relationships will change as will the make-up of key partners. All of this should be very good for returns, the end investor, and confidence in financial markets.
The year of adjusting to a new equities market landscape
Mark Hemsley, president, Cboe Europe
As we move into 2018, it’s going to be all about understanding and adjusting to the new liquidity landscape in the equities market. With the double volume caps coming into effect and the broker crossing networks closing, that volume will need to find a new home and, in the short term, I see the lit markets as the beneficiaries of that flow. With many stocks capped out of the dark pools at the start of the year, I expect we will see a sharp uptick in trading in periodic auctions given this service provides pre-trade transparency for the amount likely to trade in the auction and minimal market impact, similar to a dark pool. We’ve seen a big uptick in block trading in 2017 and I expect that will continue to accelerate into 2018 as buy-side firms continue to directly manage their order flow on block trading platforms. I think the landscape will continue to evolve over the course of the year and we’ll see systematic internalisers come into their own towards the end of the year as firms continue to assess these new venues.