BATS GLOBAL MARKETS HAS LAUNCHED A NEW BLOCK TRADING SERVICE FOR THE EUROPEAN EQUITY MARKET.
Launched on Friday, 17 March 2017, the Bats Large in Scale (LIS) trading service brings together the block flow from both the buyside and the sellside. All permutations of matching indications of interest (IOI) are allowed with no directional information published, and no IOI details exposed unless a firm opportunity to trade exists. Changes to the negotiated price cannot be made subsequently.
With MiFID II coming into effect in January 2018, the amount of trading executed in dark pools will be capped at 4% of the total volume in any stock on any particular venue and 8% market-wide in any 12-month rolling period. Minimum size requirements for Bats LIS will be based on tables published by the European Securities and Markets Authority (ESMA).
“Our analysis on the potential impact of the dark pool caps indicates that many stocks would almost immediately breach the 8% market-wide limit. For buyside participants who rely upon dark pools to trade without signalling to the market, the volume caps will have a significant impact on how they execute their trading strategies.” says Mark Hemsley, CEO Bats Europe.
Under MiFID II, large in scale block trading will benefit from one of the waivers enabling market participants to negotiate trades without the need for pre-trade transparency. Bats LIS is a MiFID II compliant solution targeted at buyside firms looking to trade large blocks of stock without market impact. Bats LIS also brings together the flow from both US and European firms who want to trade European equities, which helps increase matching opportunities.
“MiFID II regulations are restricting what can take place in broker-crossing networks, or internalised within a bank, therefore flow needs to find other venues or ways of executing. Block trading platforms such as Bats LIS are the solution required to enable block liquidity to execute under MiFID II. When MiFID II is introduced people will look for information on where trading has moved to and adapt their strategies accordingly” says Hemsley.
One of the other key areas of MiFID II impacting buyside trading is regulations governing best execution, which are set to become more prescriptive under MiFID II. The overarching MiFID I best execution obligation requires investment firms to take all reasonable steps to obtain, when executing orders, the best possible result for their clients. Buyside traders are less able to ask sellside traders to trade on risk for them, giving the buyside more responsibility on how execution is achieved.
“When looking at how to maximise the chance of execution, we believe it is important to have diversity of flow across market participants and geographies, which is what Bats LIS provides. Additionally, making it easy for buyside firms to execute their trading strategies through their existing order management systems and execution management systems really simplifies the process for them, which is why our partnership with [IT provider] BIDS, who already has extensive buyside channel distribution, is such an important component of the Bats LIS offering.” says Hemsley.