Become a master of suspense

Starting October 1, 2018, CME Regulatory Advisory RA1720-5 comes into effect. The advisory details the limited use of suspense accounts, which are temporary holding accounts submitted at the time of order entry into Globex, but prior to the allocation of the executions to specific accounts on a carrying clearing member’s books. Only a de minimis use of general or non-customer specific suspense accounts is permitted, and their usage has specific... Read More

Brexit fragmentation

MiFID brought market fragmentation to Europe back in 2007. In broad strokes incumbent exchanges lost market share to newcomer MTFs predominantly located in the UK. For UK stocks this meant that the fragmentation occurred within their home country, whereas EU27 stocks moved partly to London. But how will that change with Brexit? Will markets bifurcate? Will volume return to continental Europe? Or will everything continue much as it is today? Unfortunately... Read More

Bracing for Brexit

There are very few things we can be certain of in regard to Brexit, other than the fact that it won’t be concluded in 2018. It would be premature, though, to dismiss Brexit as topic solely for the policy makers sitting in their ivory tower far removed from the technology and operations that keep financial markets running smoothly on a daily basis. UK regulators have already asked firms to come up with contingency plans for a worst case scenario.... Read More

Is the DVC a ban in disguise?

If you had asked me last year what the actual impact of the double volume cap (DVC) would be, I would have said that it’s ridiculously complex to operate but wouldn’t matter all that much because it would likely only impact a few stocks. Seems I was wrong, judging by yesterday’s announcement from ESMA. Combining the statistics for January and February 2018, a total of 755 ISINs are going to be capped due to the 4% or 8% thresholds starting... Read More

SIs on the rise across asset classes

There’s been much speculation about the revival of the Systematic Internaliser as MiFID II has sharpened its rules. So now that we’re almost two months into the new regime, how is it looking? Luckily the regulators (e.g. ESMA and FCA) publish registers of all their SIs, and the asset class they’re active in, telling us something about the evolving market structure. Even though ESMA’s list seems incomplete (where are the Swedish... Read More

Regulatory placebo effect

With great anticipation the industry awaits the announcement of the estimates for the double volume caps, now expected in March. Irrespective of the fact that ESMA has already missed one deadline, and with some in the industry waiting to see if there is any substance to a rumoured further delay, it’s evident that the looming caps have already impacted trading behaviour. The double volume caps aim to restrict dark trading, making it less attractive.... Read More

Peeling back the layers

Changes to the Large in Scale (LIS) thresholds in MiFID II appear to be relatively balanced at first sight – lower than under MiFID I for shares with a low average daily turnover (ADT) and significantly higher for those with a high ADT (Graph 1). However, include the transparency calculations recently published by ESMA and it paints a starkly different picture. As Graph 2 shows, shares with a high ADT are deemed liquid by ESMA, and those with a... Read More

ESMA’s third-country venues – the naughty or nice list

ESMA recently issued guidance on the treatment of commodity derivatives traded on third-country venues in the context of the MiFID ll position limit regime. Prior to this is was not clear if commodity derivatives traded on a third-country exchange would be considered economically equivalent OTC (“EEOTC”) contracts and would consequently fall under the position limit regime. The guidance states that a third-country venue will be considered... Read More

Pieces coming together

Derivatives market participants have been rightfully concerned about the potentially adverse impact of MiFID II on global trading. However, the US and EU authorities have taken significant steps in recent weeks to mitigate some of those concerns. The CFTC has issued an interpretative letter regarding the unbundling of research, something that is mandatory in the EU under MiFID II but partly restricted in the US. The SEC did the same a few weeks ago.... Read More

Full steam ahead

Yesterday ESMA published the long outstanding reference data for equities and bonds. Captains of the industry might worry little about abbreviations such as LIS, SMS, ADT, AVT or ADNT. But the engineers below deck understand perfectly well that these are the crucial coordinates to keep the ship on course. The reference data allows you to work out what MiFID II really means at an instrument-by-instrument level and turn lofty principles written in MiFID... Read More

Clarity through the DEA tiers

An ESMA Q&A published this week provides some further guidance regarding the authorization of sub-delegated DEA providers, but it still leaves room for uncertainty. The Q&A draws a distinction between a DEA client that has EU exchange access directly via a member (Tier 1 DEA client), and a DEA client that obtains access through a sub-delegated DEA provider (Tier 2 DEA client). ESMA argues that Tier 2 clients do not have DEA access because... Read More

More unanswered questions

At first glance, the MiFID II trading obligation for shares seems fairly benign, bringing the bulk of equities trading ‘safely’ back to regulated execution venues. Whilst appearing all encompassing, it still leaves room for plain old-fashioned OTC trading on an ad hoc basis (or, technically speaking, below the threshold for an EU SI). But add into the mix the trading of dual listed instruments and the impact becomes potentially more harmful.... Read More

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