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New ITG Survey Finds Buyside Expects More Blocks, Off-Exchange Liquidity Under MiFID II

Traders Magazine Online News, January 3, 2018

John D'Antona Jr.

After what seems like an eternity, the Markets in Financial Instruments Directive II (MiFID II) is now a reality and in force. So, what does the buyside expect as these sweeping regulations come into play?

According to new ITG survey, “European Trading Under MiFID II,” institutional traders expect more bloc trading and a healthy amount of off exchange liquidity.

The December 2017 survey polled more than 50 buyside institutional investors who trade European equities.

Among the survey findings:

· Block Boost: Block trading volumes more than doubled in 2017. The majority of traders polled - more than 80% - expect strong block volume growth in 2018, while fewer than 20% expect block volume to remain flat or shrink under MiFID II. More than 86% of traders surveyed expect to interact with block trading venues in 1Q 2018.

· Off-Exchange Strength: Dark pools and MTF periodic auctions currently make up almost 10% of total European trading. By the end of 1Q 2018, most of those surveyed (61%) expect dark/periodic auction MTF liquidity to grow to 12% or more of total trading, 23% of traders expect it to remain around current levels while 16% expect it to shrink to below 8%. Overall, more than 82% of traders polled plan to interact with dark MTFs in 1Q 2018, while 80% plan to interact with periodic auctions.

· Enter the Systematic Internalisers: Banks and electronic liquidity providers (ELPs) have registered to establish approximately 100 systematic internalisers (SIs) under MiFID II. Some 88% of traders surveyed expect that there will be fewer than 10 relevant ELP Sis in operation at the end of 2018, while 42% expect there will be fewer than 5.

Bank-run SIs look to be the more popular choice, with two thirds of traders expecting to interact with Bank SIs in 1Q 2018 versus fewer than 40% for ELP SIs.

· Overall Liquidity: Opinion is split on how MiFID II will impact traders’ ability to access quality liquidity. 37% of those polled expect it to become harder, 18% say it becomes easier while the remaining 45% expect no significant impact.

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