Bilateral trading was front and centre across two panel discussions on day one of the TradeTech Europe conference as experts weighed up the importance of strategy, choice, and immediacy when it comes to the tactic.
As Fabien Oreve, deputy global head of trading and securities financing and head of equity trading at Candriam, asserted, when it comes to liquidity “competition is needed, but so is choice,” and while immediacy of execution is a factor, there are other things to consider.
The reality of cannibalisation
When it comes to liquidity it is of course a matter of give and take but also one of balance, agreed panellists – with very little needed to tip the scales.
Matt Clarke, head of EMEA distribution and liquidity management at XTX Markets, said: “It’s tricky because when it comes to a lot of the innovations that exchanges might look to bring to market on periodics or trajectory cross there’s a fundamental dichotomy – you can do these things that are interesting, but it is likely to somewhat to some degree cannibalise the continuous market.”
When it comes to how the industry landscape is changing as strategies are adapted and new options and opportunities come to market, speakers were keen to draw lines where things do, and importantly don’t, overlap.
“Market making is still fundamental and at the core of what we do,” asserted Anish Puaar, head of European equity market structure at Optiver.
“Bilateral is obviously the thing that gets people very excited but we are in essence a market maker and what we do bilaterally doesn’t affect our on-screen strategies.
“It’s important to understand that when we take on a position, the liquidity doesn’t just simply disappear into thin air, we have to manage that position and unwind that risk […] there’s still a large element of on-screen trading related to our bilateral trading as well.”
Mike Poole, head of trading, Jupiter Asset Management, concured, reiterating that the liquidity the buy-side takes from firms like Optiver doesn’t just go into the ether, explaining that “there is a recycling of risk and there is an ecosystem there to facilitate that”.
“[…] It’s a type of flow that suits some of our strategies where it’s one and done, and that technology greases the wheels there.”
However, he went on to highlight the broader market potential which comes alongside – the continuous algo trading degradation stemming from the most benign liquidity being taken on a bilateral basis.
James Baugh, managing director, head of European market structure, TD Securities, also touched on this, explaining: “It’s really about the liquidity that you’re interacting with on those addressable markets and how the liquidity dynamics are now shifting – that’s where we are seeing performance degradation.
“We had a client previously say to us that they are seeing performance degradation in the algos across the street and so clearly there’s a cause and effect that’s happening here.”
Read more: Participants keeping watchful eye on growing bilateral trading segment in 2025
Kicking that can down the road
When it comes to the empirical reality, Vincent Boquillon head of equity trading, at Euronext, highlighted the important point that in actuality, when one takes the time to look at the clip size that are printed in the SI world or off book on exchange, one isn’t necessarily predominantly in the block size territory.
“We see clips that are very similar to what we would see in terms of average thread size on exchange. I think this is where we have some concerns in terms of the long-term trends.”
He went on to add that the reality of a lack of consistency and rules in terms of pre-trade and post-trade information remains highly relevant.
“It leaves the doors open to guesswork and interpretation. We have difficulties mapping out that bilateral liquidity and what is invisible market versus what is actually addressable. We don’t dislike bilateral inequality […] What we strongly advocate for is for a level playing field in terms of the regulatory oversight.”
Speaking on the notion of a lack of clarity, Simon Dove, managing director, head of liquidity, EMEA, Instinet, asserted that the clear outcome from a lack of confidence or transparency is that it makes Europe less attractive to investors.
“Europe is a very attractive place to trade on the global scene and that hasn’t happened for a very long time. The mechanisms are not broken, it’s how to get there.
“Europe’s led the charge around innovation for a number of years, now we just need to tighten this and understand why it’s not transparent and understand where that is an intentional non-transparency which needs to be fixed, or if it’s actually a by-product of something that needs to be addressed […] The elephant in the room is that everyone knows where we need to get to, what the answers are. We just don’t have it in place at the moment.”
The tide is rising when it comes to liquidity, and demonstrably as these tides do rise, they’re also potentially turning towards Europe more and more.