MiFID II â Pre- and post- trade transparency - QED

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Memorandum MiFID II – Pre- and post-trade transparency Crossing networks provide the buy-side with a choice of any variation between light and dark. It is all dependent on the order itself. Now, he fact that the sell-side uses words like dark is not very helpful. Dark sounds shady, as if someone is doing something that is not right. Dark should be replaced by anonymous. Clients do not know who the other side of t h e t r a d e i s a s t h e y a re anonymous. Anonymity prevents market impact and information leakage and that is the whole point of executing in a dark pool or any other dark mechanism. Algorithms in a way can do the same thing. They take large orders and break them up into slices, which helps with market impact. Again, assisting the buyside by not having their trade impact market prices. Important to note, there are execution practices that work today and are currently making markets liquid. This is particularly evident when you see synergies between equities and fixed income. For example, there are similar (but definitely not exact) methods of sourcing liquidity. With equities one can use IOIs (Indications of Interest) and Trade Adverts for liquid fixed income instruments one can search for liquidity on Bloomberg (such as AllQ). There are similar services to be found on TradeWeb or Market Access. Choice is vital to the buyside when sourcing liquidity. However, his does not mean that some additional controls would not be of benefit. The biggest examples of when transparency can be harmful and when waivers are necessary in facing off against transparency is large in scale and illiquid orders. Illiquid orders are orders that are rarely traded or are instruments where there are very few market makers. If there are few market makers, In the case of a few market makers, they certainly will not make a price if they have to be transparent because the minute they do so it will damage their market making ability and adversely affect their client.
Memorandum MiFID II – Pre- and post-trade transparency Again, it is important to focus on - what is helpful and what is harmful to the market. Post-trade and transaction reporting is extremely useful. However, must be done correctly. Trade reporting is very valuable for price formation. You can see what has just traded and get an idea of what the price should be. Transaction Reporting allows the buy-side to quantitatively measure the performance of the sell-side as well as performance down to the individual dealer level on the buy-side. Transaction reporting or Transaction Cost Analysis has even moved into the pre-trade space as the buy-side is using this for cost expectation as part of their execution strategy. This information is needed in fixed income as only in equities is TCA being used in the pre-trade space. While both trade reporting and transaction reporting and transaction cost analysis is beneficial we still need deferred publication where a trade is illiquid. In the case of illiquid bonds however, you could report to the regulator for trade reporting but not to the market. That way t h e r e g u l a t o r s h a v e t h e i n f o r m a t i o n f o r p o s i t i o n management and market abuse purposes but the price formation is not damaged. When it comes to a consolidated tape we should follow what has been taken place in the US with Trace, but also look at the lessons learned. There should be only one venue for reporting post-trade data. If you have several you risk providing an opportunity for discrepancies. Ms Callaghan suggested that we should create a liquidity profile forum consisting of the debt management office and the primary dealers. They are the ones handling bond auctions today so they are well positioned to come together to determine which bonds are liquid and which bonds are not. An example of product synergies between equities and fixed income could be Commission S h a r i n g Agreements for equities and
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MiFID II â Pre- and post- trade transparency - QED

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MiFID II â Pre- and post- trade transparency - QED