Mark Hemsley, chief executive officer of Bats Europe, was quick off the mark to express concern about the impacts of the UK’s recent decision to leave the EU. He said that if necessary, Bats would open an operation in Dublin.
The exchange recently announced the launch of its MiFID II compliant block trading platform Bats LIS, which incorporates technology from BIDS Trading in the US. Shortly after this, Euronext launched a similar initiative and became the latest European exchange to offer large-in-scale trading services.
The Trade spoke to Hemsley about whether his opinion on Brexit remains the same and the ensuing European block trading battle.
Hayley McDowell: Bats Europe expressed concern after the EU referendum about the UK’s access to the single market, and even suggested setting up shop in Dublin as a result. Has your opinion on this changed?
Mark Hemsley: Like everyone else, we are waiting for clarity on what exactly the framework will be post-Brexit.
From our point of view, we wanted to get a statement out there to ensure our clients understood that we will take the necessary steps – which may include having an entity outside of the EU – to continue offering services to our clients in and outside of the EU.
Bats Europe is a pan-European exchange and we are committed to being that in a post-Brexit environment.
Given the likely timing in instigating article 50, we are assuming we have another two and a half years to put something in place, and there are situations which would likely lead to Bats setting up an operation in the EU.
For example, if the UK does not get third party equivalence, meaning there will be limitations on our access to the EU, which would hamper our business.
I mentioned Dublin because of the legal framework and labour laws, which are factors that could be friendlier for a business like ours.
However, we do believe the majority of our operations will continue to remain in London. It’s about whether we would need to establish any additional legal and regulatory jurisdiction presence.
The feedback from our clients after we announced our intentions after the referendum result was very positive. They liked that we were quick off the mark in making the statement.
We aren’t scratching our heads and wondering whether we should change our business model. We thought about our plans and we are committed to being a pan-European exchange.
Our assumptions on MiFID II when we looked at Brexit, was that it will still happen on time. It will likely be in place a year before article 50 is instigated or takes effect, and being MiFID II compliant will be a strong argument for ensuring the UK has access to the single market.
HM: What problems do you see in post-MiFID II world?
MH: I think the biggest change will be felt on the non-equities side, particularly in some of the commodities, fixed income, and possibly even the derivatives businesses.
Those have not yet been exposed to the level of transparency required within the regulatory framework.
There are a lot of businesses that have been through MiFID I and are reasonably familiar with the framework and what they have to do, but if you are in an environment which has not been regulated, then it’s a big project for those organisations.
Bats is used to this and instead have looked at the opportunities, like the large-in-scale and dark pool caps, which led to the launch of our Bats LIS platform and periodic auctions.
Both our periodic auctions and Bats LIS have been built with MiFID II and available now, because we think people will not wait until the deadline before moving into that mode.
A lot of our launches come from clients who can see where their businesses are going. We have had very good feedback from those who use our indices, for example, and our customers want us to add more to the series, which is something we are looking to do.
HM: The announcement of Bats LIS was quickly followed by Euronext’s block trading platform launch. What were your thoughts on that?
MH: The way the Euronext initiative appears to work is that you can put large-in-scale trades onto its lit order book, and Bats has had that capability since the LIS launch.
It sounds like new order types, rather than our BIDS Trading partnered platform, so I don’t actually think there is much innovation or anything new happening there.
Our platform is a software facility for putting together indications of interest that link to the exchanges and the brokers for execution, and to the post-trade environment – but it is a platform.
MiFID II will see an uptake in block trading with more pressure on broker crossing networks, and so less crossing with the brokers. The buy-side is consistently calling for new and innovative trading capabilities.
It is definitely stimulated by MiFID II, and there will certainly be fewer places to trade that do not require pre-trade transparency.
I expect to see more block trading taking place on the facilities we are putting together post-MiFID II, but at the same time we are answering a call which is there now and that is why we are launching Bats LIS this year instead of next.