Organised Trading Facilities: Will Equities Cope Without Them?
Report Summary
Organised Trading Facilities: Will Equities Cope Without Them?
While introducing a new category of trading venue may increase fragmentation for the equities market, excluding OTFs from the equities regime is a mistake.
London, 19 December 2012 – A new report from Aite Group examines the concept of organised trading facilities (OTFs), defined broadly as execution venues that encompass over-the-counter trading in the equities market. Based on March through August 2012 Aite Group interviews with a variety of stakeholders, the report considers the impact of excluding equities from the OTF purview, particularly relating to broker crossing systems.
MiFID II proposed that an additional regulated trading venue—the OTF—stretch across all asset classes with transparency requirements adjusted to the type of instrument traded. The intended purpose? To ensure a level playing field between regulated markets, multilateral trading facilities, and OTFs by enforcing identical pre- and post-trade transparency as well as organizational and market surveillance requirements. Early in 2012, however, the rapporteur for MiFID II—German MEP Markus Ferber—questioned the need for the OTF category in equities, and OTFs were in October 2012 excluded from the equities regime in the European Parliament’s amended text for MiFID II. While including OTFs for equities may increase market fragmentation, the market also has concerns about leaving the OTF category out of the equities market; concerns surrounding the exclusion of the OTF category for equities include reducing liquidity and increasing trading costs for buy-side traders.
“The European Parliament, Council, and Commission must better understand the role of the marketplace broker and how broker crossing systems differ from regulated markets and multilateral trading facilities,” says Simmy Grewal, senior analyst with Aite Group and author of this report. “An ideal scenario for market participants would be to retain the OTF category in equities but to customize broker crossing systems for the services that brokers provide their clients.”
This 23-page Impact Note contains two figures and two tables. Clients of Aite Group’s Institutional Securities & Investments service can download the report.