Mark Pumfrey, Head of EMEA, Liquidnet, explains how the trading network supports the buyside
How will MiFID II affect the buyside trading desk?
MiFID II will introduce significant changes for the buyside, in particular in the areas of dark pool trading and the ‘unbundling’ of payments for research and execution. As the industry prepares for its implementation, we will see a rise in the use of execution-only venues and probably fewer but larger trades executed.
Research providers will also have to focus clearly on their unique selling point and the price they will charge. Full unbundling will assist asset managers to meet best execution obligations as they would be able to trade unencumbered by research commitments.
What are buyside firms doing to prepare?
Under the new rules, the buyside will need to understand what is happening with their order flow and forensically analyse execution data provided by their brokers to prove best execution. As a consequence, buyside firms are intensifying their scrutiny of their brokers and trading venues’ execution performance.
Where does Liquidnet fit into the trading ecosystem?
Liquidnet helps institutions protect the performance of their portfolios by allowing them to trade more efficiently – minimising market impact and maximising price improvement.
We are building a complete execution ecosystem for the buyside which includes matching blocks through our core negotiation product; seeking blocks by uncovering deeply hidden liquidity sources; and building blocks using our Next Gen algos and decision-making tools.
How can you address the problems of inefficiency in sales trading on the buyside?
Much of the current inefficiency results from buyside traders struggling to unlock liquidity. We enable institutional investors to find a match and execute within its own community, centralising institutional liquidity. Independent research from LiquidMetrix shows we deliver, on average, 90 basis points price improvement compared to volume-adjusted prices in lit markets at the time of trade. When investment returns are low, this can make a huge difference to the fund’s overall performance and return.
What kind of trading activity is the platform currently witnessing?
Liquidnet EMEA had its best ever first quarter performance in European equities this year and continues to see strong market share gains. As institutions gear up for MiFID II, where best execution is paramount and natural parent order block liquidity becomes even more valuable, we expect to see further strong growth in our core block business, Next Gen Algos and Fixed Income offering.
Will other initiatives arise in the marketplace?
Over the next few years we expect to see new venues, order types and systems being created to help solve some of the problems the industry is facing, but only those which offer value to investors will survive.
What is Liquidnet’s focus for the future?
We are continuously innovating and bringing new efficiencies to the market. Our focus in 2016 is to deliver what the buyside needs in equities and fixed income: tools that allow them to source block-trading opportunities, real-time data, and analytics to make smarter trading decisions.