Skyler • News: A-TEAM

Liquidity Discovery in Post- MiFID Europe

Executive Summary:

The EU’s MiFID regulation is forcing major changes in the structure of the European financial services market. New multilateral trading facilities (MTFs) like Chi-X, the emerging Turquoise consortium, the latest entrants Nasdaq OMX, and Bats Europe are boosting competition for liquidity. As a result, traditional exchanges are being forced to lower their fees, and traditionally monopolistic settlement relationships are being dismantled. These structural changes are leveling the playing field for trading in a new Europe where liquidity will no longer be ‘sticky’; but instead will roam the marketplace in search of the best deal.

This combination of factors represents a significant challenge and opportunity to financial institutions that need to identify liquidity for their clients and execute at competitive price, cost, and market impact levels. Often, the market’s best prices are to be found on alternative trading systems. The most visible new MTF – Chi-X – claimed average price improvement over primary listing exchanges of 2.38 basis points for last December, when it gained market share of over 15% of total volume on the primary exchange and Chi-X for certain blue-chip stocks.

The new post-MiFID Europe presents market participants with both a carrot and a stick in order to meet the new requirements. The regulation is creating a carrot for forward-thinking institutions that recognize the major opportunity for early adopters to leverage newly available smart order routing and liquidity discovery technologies in order to gain market share as European markets become increasingly fragmented.

Meanwhile, those that opt out of making the required investments face the stick of seeing their market share snapped up by more aggressive and larger players, effectively banishing them to specialized boutique services or requiring them to outsource key trading functions – or worse, succumb to the inevitable market consolidation.

To thrive – or even to survive – financial institutions must adopt new liquidity discovery tools. Liquidity discovery systems can allow firms to aggregate liquidity information from the different European venues, generating aggregated virtual order books that provide a consolidated view of the fragmented liquidity – the fuel needed to drive smart order routing systems in order to meet MiFID’s best execution obligations.

Help is at hand in the form of Skyler’s C3 Liquidity Discovery solution, which alerts users to the available liquidity and best prices from the growing array of European execution venues. The Skyler C3 Liquidity Discovery solution addresses the specific needs for liquidity discovery in post-MiFID Europe, with its enhanced flexibility to deliver user specific books, embedded notion of settlement lines, support for multiple currencies, and venue specific trading flags and types.

See a demo of the Skyler Liquidity Discovery Solution at TradeTech Europe, Booth #22, April 22-25 in Paris, or contact Valerie Bannert-Thurner on +44 (0)7942600101 or valeriebannert@skylertech.com to learn more.