CLEAN SWEEP TACKLES ORDER BOOK FRAGMENTATION AT UBS MTF.
UBS MTF, the broker-owned multilateral trading facility (MTF), has implemented a new order type and rolled out waivers across its three order books to increase trading efficiency.
“We didn’t want to fragment the liquidity within UBS MTF,” says Richard Semark, CEO of UBS MTF. “Having clients send large orders to one book and then if unsuccessful after a period of time, pulling that and sending to another book would not be an efficient or an attractive way of trading on UBS MTF.”
The trading venue, ranked as Europe’s second largest dark pool according to BATS Trading data, says it is responding to regulatory change, specifically the preparation for MiFID II, which comes into effect in January 2018.
In a note to members, the MTF reported that it now operates under two waivers – Large in Scale (LIS) and Reference Price Waiver (RPW) – for execution on the its mid, bid and offer books.
“There is clearly an increasing appetite to trade larger sizes,” says Semark. “We are seeing that across the market and we wanted to make sure that UBS MTF was able to offer that functionality. Since the introduction of the LIS waiver we see members execute in large size, then we see them coming back to try and do that again. So actually the growth in the number of LIS trades that we have had has been – whilst not huge – has been quicker than I expected.”
The MTF has also introduced a new execution instruction so members can seek liquidity in the three order books, with one single order, known as the order book sweep (OBS). It offers an alternative to the single peg price as an execution instruction. Traders can instruct an order be conducted either a half, or a full, sweep across peg types.
A half sweep will execute at the primary peg, or if no immediate execution is possible, the order will be eligible for execution at the mid-peg price. A full sweep should lead to execution at the primary peg, and if no immediate execution is possible, the order will be eligible for immediate execution at the mid-peg, then at the market peg if it is still not executed partially or fully at the mid.
Semark notes, “While the sweep order type is a fairly small proportion of our orders at the moment, it’s certainly something which is attractive to members because it does allow them to try and take advantage of the near touch before moving to mid or far touch. We are seeing some increases in how members are using that.”