The impact on liquidity of Mifid II rules is leading to changes in the types and useage of trading venues, according to analysis by ITG.
Looking at regulated exchanges and the lit books of multilateral trading facilities, dark multilateral trading facilities, broker crossing networks, systematic internalisers and periodic auctions, ITG has concluded that “New venue types have sprung up and brokers’ algorithmic trading strategies are starting to use these new sources of liquidity”.
“In this study, we looked at how liquidity is being sourced by broker algorithms under Mifid II on behalf of institutional clients, and the average cost from trading across various venue types.”
“We observed that a shift towards trading on lit markets took place under Mifid II in line with regulators’ goals. There has been some uptake of bank- sponsored systematic internalisers, but even when that is combined with liquidity from other alternative sources, it is not sufficient to overcome the elimination of broker crossing networks. From a cost perspective, we observe that the highest level of cost and price movement post execution are associated with trading on the lit exchanges and MTFs and the lowest costs are seen through trades done on bank SIs, periodic auctions and dark venues for both capped and uncapped stocks. These cost observations, when combined with the increased use of lit markets, are likely to subject the investors trading in European stocks to increased costs.”
Click here to read the full report: https://www.itg.com/assets/ITG-Venue-landscape-shifts-under-MiFID-II-Nov-12-2018.pdf