toxicity. It is the absolute lowest in
So why hasn’t activity on lit
venues and exchanges like Aquis
already grown significantly? What
is prohibiting participants from
opting to use such venues ahead of
MiFID II? Analyst at Liberum, Jus-
tin Bates, explains the complexities
of the regulation itself alongside
fear and an element of waiting to
see what others will do, have all
played a part in this.
“I can understand how some market participants anticipated a shift
towards lit venues ahead of MiFID
II and we were all expecting firms
to be ready for the new world and
have their respective houses in
order. The reality is we are dealing
with large clients with complex
systems, which take time to adjust.
There is a fear and questioning of
the first mover advantage, and market participants are waiting to see
what others are doing,” Bates says.
Horan adds there is a technolog-
ical element to the lack of move-
ment towards disruptive trading venues like Aquis.
Algorithms have a lot of back data on other venues
strategically used to determine where to send orders.
As Aquis Exchange is still relatively young, algorithms
simply do not have much data on the venue and so will
opt for a more familiar venue.
Haynes predicts the shift will be last minute, reflecting
the ‘classic nervousness’ of the industry where nobody
is willing to make the first move, but somebody has
to show the way. As McLoughlin already highlighted,
Haynes says, “The spotlight will be on data, if the data
is available to analyse then firms will look at it and
liquidity should then go to venues that are providing
the service to the benefit of the end client.”
Market participants have predicted the turning point
will be June 2018 when we see the first RTS 27 publi-
cation under MiFID II. All venues will be scrutinised
publicly and in terms of price reversion, likelihood
of execution, costs, pricing. “We will see exactly how
good each venue is and when firms draw up these re-
ports it will be very difficult to ignore a venue that has
a small market share but looks great,” Horan adds. “If
you’re not going to a venue that is performing well and
the regulator asks why, it’s a very tricky conversation
to have when that data is public. This kind of transpar-
ency, even though it’s painful for many firms, will help
venues and certainly any worthy underdogs.”
There’s no doubt 2018 will be a year of adjusting for
asset managers, exchange operators and broker-deal-
ers alike, but the best execution reports as required
by RTS 27 very well could be the moment the winners
are separated from the losers, or even the underdogs.
It’s hard to ignore the amount of market participants
who have pointed to disruptors like Aquis Exchange
as being ones to watch in 2018. Bates summarises the
point rather succinctly: “Aquis Exchange is a venue
that simply cannot be ignored in terms of pricing.
When it comes to order flow. We will see migration of
flow out of dark pools into lit venues, which is exactly
what Aquis is.
“It should be a beneficiary of this, but there are two
other major factors around that attraction other than
the migration from dark pools. It presents a compel-
ling case in terms of offering best bid and offer pricing
and liquidity, and perhaps most importantly the actual
cost of execution is so much lower than any other
Indeed, it will be hard to argue against that.
If you’re not going to a venue
that is performing well and the
regulator asks why, it’s a very tricky
conversation to have when that
data is public.
- MICHAEL HORAN, HEAD OF TRADING, PERSHING