Potential loophole within the systematic
internaliser regime under MiFID II has
been source of controversy for months.
shuts down systematic
After months of controversy surrounding the sys- tematic internaliser (SI) regime under MiFID II,
the European Commission has made its move to shut
down a potential loophole.
An amendment to the rules means banks operating
as SIs will not be able to recreate broker-crossing networks through matching client orders as an exchange
“An investment firm shall not be considered to be
dealing on own account… where that investment firm
participates in matching arrangements entered into
with entities outside its own group,” the amendment
“With the objective or consequence of carrying out
de facto riskless back-to-back transactions in a finan-
cial instrument outside a trading venue.”
Banks were first warned against networking SIs at
an event hosted by The TRADE earlier this year. Kay
Swinburne MEP told delegates market players were
“seeking ways around the rules, seemingly using grey
areas to avoid giving investors the best price”.
“Politicians do not see this as a loophole, but the financial industry seeking a new way to line its pockets
at the expense of investors,” she added.
Following several exchanges between the European
Commission and the European Securities and Markets
Authority, the amendment published published in
Several major institutions - including JP Morgan
and Morgan Stanley - have signed up to operate as SIs
ahead of the January 2018 MiFID II deadline, with the
number expected to increase significantly.
A surge in the number of SIs could exacerbate market fragmentation, with expert predictions estimating
up to 100 SIs could be in operation by January.
“We believe clients will find it difficult to interact
with [all SIs] without sophisticated aggregation technologies,” Rob Boardman, CEO of ITG Europe told