See what I mean by ill thought out regulation? on the other hand, it could just be teething troubles and this will settle down soon. I suspect its 40:60, but the jury is out! MiFID seems to be causing some teething troubles as this report suggests: I would actually see the fragmentation as a reasonably good step as more fragmentation will break the hidebound European trading structures and shake up the sclerotic participants. This should help reduce costs and increase efficiency.
The markets in financial instruments directive might be only two weeks old but fund managers and brokers have complained fragmentation resulting from the European Commission directive is affecting their ability to trade European equities.
Mifid has been introduced to foster competition between trading and trade reporting venues but an immediate effect has been to complicate how they trade European stocks, institutions have argued.
London-based companies aired these concerns last week after the share prices of some UK blue chip stocks rose sharply despite slow trading on the London Stock Exchange.
It was only when they checked Boat, the trade reporting platform backed by a consortium of investment banks, that they saw heavy trading in those names being executed away from the LSE.
A handful of the largest investment banks are connected to all viable European trading venues and are just going live on the systems – smart order routers – that aggregate price information. Those brokers that have not connected to these platforms complain they are at a disadvantage compared with their larger rivals.
One broker said: “We are not connected to Boat and there has not been a lot of visibility into how Boat works.”
Boat argued it is open to all institutions, having increased its number of clients from 10, when the formation of the banking consortium was first reported by Financial News in August last year, to 25.
But other companies are embracing the opportunities presented by Mifid. UBS last week linked up to Chi-X, the trading system owned by Nomura’s agency broker Instinet, and the Irish Stock Exchange for the first time.
Nick Holtby, head of European client trading and execution at UBS Investment Bank, said the additional venues would increase the range of liquidity pools available.
The Swiss bank said last week it was advising its clients that it will “smart order route all client flow unless it has a specific instruction from the client not to do so”. The bank added: “The UBS smart order router will access viable pools of liquidity such as exchanges, multi-lateral trading facilities and dark pools and route flow accordingly.”
The use of trading systems, such as Chi-X, and dark pools of liquidity, which are anonymous matching systems administered by banks or brokers, is set to increase under Mifid.
All this to be taken with a grain of piquant salt!!!