Pre-matched activity on increasingly popular periodic auction venues has been over stated, according to leading industry participants speaking at TradeTech 2018.
MiFID II has seen volumes on periodic auctions surge significantly since the new regulatory regime came into force on 3 January, although regulators and market participants have questioned whether activity is broker preferenced and pre-matched.
Speaking on a keynote discussion panel Tom Stenhouse, head of product for equities at the London Stock Exchange Group (LSEG) claimed around 25% of the exchange’s periodic auction volumes are self-matching, and just 10% of that 25% comes through at auction time while the remaining 90% are resting orders.
“The natural order flow that we see has allegedly been pre-matched through these venues, but we need to educate regulators that this is simply not the case,” he said.
Similarly Mark Hemsley, president for Europe at Cboe Europe, agreed with Stenhouse and added that regulators are looking at the auctions closely as they do not want to see venues where you can just submit pairs.
“The regulators do not want to see a reference price waiver book in disguise that looks like they could be multilateral but in fact they are actually bilateral,” said Hemsley. “Cboe took great care and time to go through these constructs to ensure we did not create just another broker-crossing network (BCN).”
The panel also agreed that the best execution venue analysis expected in June under MiFID II’s RTS 27 will largely be ineffective. Richard Semark, CEO of UBS MTF, told delegates the information required for those reports should include more granular detail on order flow.
“The data on venues that we have been talking about here today are not included in those reports, but that is what will be useful when comparing venues,” he said.
Hemsley added the reports are largely “pretty useless”, and all venues will likely show they are the best venues in the market because the data is not defined enough. The buy- and sell-side will instead rely on brokers for the information that Semark referred to.