Market structure : Plato Partnership : Mike Bellaro & Nej D’jelal

EDUCATING THE BUY AND SELLSIDE.

Mike Bellaro, Plato Partnership Co-Chair and Global Head of Equity Trading, Deutsche Asset Management and Nej D’jelal, Plato Partnership Co-Chair and Managing Director, Head of Electronic Equities Product, EMEA at Barclays discuss the platform’s new research network with leading academics.

Can you tell me about the latest announcement and the development of a European Market Structure Research Network with Imperial College London?

Mike Bellaro: We have entered into an agreement with Imperial College Business School in London to establish a European Market Structure Research Network. Dr Andrei Kirilenko, director of the centre for global finance and technology at the business school will lead the network and produce academic research for the group. They will have access to BMLL Technologies platform – where we have a partnership – which will enable selected academics to access standardised historical granular limit order book data of global trading exchanges and venues. Our ambitions for Plato Partnership are truly international, and access to unique data for academics is a crucial cornerstone for our plan to improve market functionality worldwide. Enhancing the future of our industry is the key driving factor in our development of this network, and our ability to offer academics access to the data will be a great step forward in furthering change and improvement in the sector.

What were the drivers?

Nej D’jelal: At the very beginning of the Plato Partnership we realised we had a unique opportunity for the industry to give back to market participants and end investors through accessible and independent academic research. As an industry, we have lived through several structural changes over the last ten years and we believe that through our partnerships with organisations such as BMLL we can provide a better vision for enhancing markets to work in the best interests of all market participants. The access to the BMLL platform for exchange and venue historical order book data will be a significant benefit to the academics because it will provide important insights into how to tackle many of the key data challenges firms are expecting with the implementation of MiFID II.

Mike Bellaro: The network builds on the launch of the Market Innovator (MI3) earlier in the year which consists of stakeholders, founding members and academic advisors such as Imperial College, Oxford University and the University of Melbourne. Our aim is to bring academics into the mix so that they can have a better understanding of the concerns, processes and views of the industry as well as contribute their own thoughts. We will produce independent research and analytics which will be open to peer review.

The buyside wants data and analytics to help traders become more informed about trading decisions as we head into the new world of MiFID II. There will either be a fragmentation of block trading or a race for speed so transaction cost analysis is an urgent requirement.

Have you published a paper yet?

Mike Bellaro & Nej D’jelal: We held a conference in late June – the Evolving Market Structure in Europe and Beyond – which had over 80 attendees from academia as well as the financial services industry. The conference looked into the changes that are being required to the underlying technology and infrastructure in order to meet MiFID II requirements. We also presented our MI3 paper, published by Professor Carole Comerton-Forde, Professor of Finance at the University of Melbourne, which examined how firms will need to adjust to new caps on dark pool trading and the closing of broker crossing networks under MiFID II. These restrictions, as well as the rise of block trading, have become a source of great debate in the industry. Professor Comerton-Forde’s paper said that while the industry will be able to adapt to many of the changes quite easily, the double volume caps are likely to have more significant effects, with possible suspensions prohibiting dark pool trading at venues, if trading volume caps exceed accepted limits.

She also laid out four recommendations that firms should follow, starting with the need for the buyside to assess their trading levels this year to better determine whether volume caps will be reached, triggering possible trading suspensions. She also called for the need of buy and sellside firms to collaborate on adjusting operating practices when dark trading is shut down in certain stocks. Both will also need to carefully evaluate the merits of new trading venues while buyside firms in particular should look to effectively capitalise on new data provided by MiFID II compliance to assist with their evaluation of trading outcomes.

What is the next step of MI3?

Nej D’jelal: MI3 will continue to produce independent academic research, made available to the investment community, and ultimately contribute to future market structure and regulation. As well as formalising an independent approach to generate such meaningful research, MI3 will continue to bridge the academic community with market practitioners through future academic conferences and the recently announced academic network in partnership with Imperial College London.

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