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Average daily notional fell 9% to €79.4 billion in November 2018, as European markets calmed following the turmoil during ‘Red October,’ according to TABB Group’s “European Equities Liquidity Matrix™: November 2018.”
Volumes on dark MTFs stabilized after the first set of dark pool caps was lifted in September 2018, accounting for 7.8% of total order book volume in November, says London-based TABB research analyst Tim Cave, who wrote the report. “The rebound in dark volumes has come partly at the expense of periodic auctions, which saw their lowest volumes in seven months in November. Now that the first year of MiFID II is drawing to a close, liquidity in Europe’s equity market has begun to assume a bit of a holding pattern and we can start to make some observations about the regulation’s impact, focusing on four key emerging trends.”
Bank systematic internalisers (SI)s, the regulatory channel for principal trading, have seen limited growth this year. Cave says it has been difficult to decipher much from the RTS27 execution quality reports banks have had to produce on a quarterly basis under MiFID. “We also know that MiFID II’s promotion of risk-based trading, principally via the enhanced SI regime, has led many banks to invest in central risk books (CRBs); but these appear to be at differing stages of development.”
Second, ELP SIs have been picking up steam. The buy side is grows more comfortable executing against ELP SIs and is seeing low levels of market impact with certain SI operators.
Third, periodic auctions are here to stay, says Cave. “Don’t be fooled by ESMA’s review into periodic auctions, which is partly fact-finding, partly political and is likely to result in tweaks to what is a nascent execution channel.”
Last, ripe for competition, there has been strong growth in closing auctions under MiFID II, a continuation of a trend that has been going on for several years driven by the rise of passive investing. “This trend has not gone unnoticed by other venue operators, which are looking to develop rival end-of-day systems. Even brokers are developing alternatives to the close and internalizing flow before routing externally. This is a space worth watching.”
TABB’s European Equities LiquidityMatrix, published on a trailing month basis, provides a breakdown of market share for each major equity execution channel, including lit venues, dark MTFs, block venues, periodic auction books and SIs.
The report is available for download by TABB equities clients and pre-qualified media at https://research.tabbgroup.com/area/equities. For more information or to purchase the report, write to info@tabbgroup.com.
