This Week: Europe’s Mifir review, MarketAxess, FIA, and more

European trade associations warn against ‘suboptimal outcomes’ as Mifir review enters key stage

Three European trade associations representing asset managers, banks, and brokers have urged legislators to take an “evidence-based, ambitious” approach in a review which could fundamentally change the structure of European markets.

Important negotiations between the European Council, Parliament, and Commission are set to begin next week, with payment for order flow and the model of a future equities consolidated tape top of the agenda. The Association for Financial Markets in Europe (Afme), the European Fund and Asset Management Association (Efama), and the German Investment Funds Association (BVI) warned that “policy makers will bear the responsibility if EU capital markets continue to fail their users.”

“We are seeing investments and listings moving overseas, especially to the US. There is a vicious cycle which contributes to the issue of liquidity stagnation in the European Union. With the Mifir review, the EU has a chance to step up,” Giulia Pecce, head of Mifid/Mifir policy and associate director at Afme says.

The Council and Parliament have been at loggerheads over what precise data should be included on the consolidated tape for equities. European exchanges are largely calling for the tape to provide only post-trade data, while a group of banks and asset managers have bid to run the tape on the condition that it also includes pre-trade information.

“There are strong political and commercial interests at stake. Certain market participants have been pushing hard to dilute the information provided by the consolidated tape as much as possible, with a view to diminish its commercial viability. They are clearly a powerful voice because of very strong commercial interests,” Pecce says.

Afme is calling for five levels of depth in addition to post-trade information on the tape.

For Pecce, the Mifir review is a key opportunity to keep the EU competitive relative to other markets. “Because we are European, we often do not realize that overseas investors really look at Europe as one country. For an overseas investor, this nuance of 27 plus one is not a complexity that they are prepared to cope with. In that sense, the consolidated tape, if appropriately constructed, could deliver some important outcomes in terms of mobilizing investments from outside the EU but also within the EU, and contribute to reducing home bias,” she says.

While there is a narrow path for a deal to be reached next week, the debate may continue into July, when Spain takes up presidency of the EU Council.

First client algo trade completed on MarketAxess’ new automation tool

MarketAxess has announced the first client algorithmic trade executed across multiple protocols using its automated execution solution, Adaptive Auto-X, which is currently in pilot. The new tool allows market participants to directly interact with the market using a predetermined rule set.

Phase one of the Adaptive Auto-X pilot, which launched in early 2023, provided users with automation workflows to interact with passive liquidity through RFQ, order book, and other matching protocols. Users can specify a protocol or use smart order routing to maximize the potential liquidity sources leveraged across multiple MarketAxess trading protocols. Adaptive Auto-X uses predictive analytics with proprietary MarketAxess data.

In Q1 2023, the first pilot clients were able to place a resting order that simultaneously connected to different liquidity pools. Clients controlled their algorithms by customizing sizing, visibility, and pricing parameters in real time.

MarketAxess has unveiled the next phase of the pilot, which will introduce additional liquidity-seeking strategies depending on trader objective and urgency.

Automation protocols represent nearly 10% of total trading volume on MarketAxess in the year to date.

You can read more about the trend for automation in bond trading here.

FIA Tech boosts operational resiliency of trade data network

Futures industry technology provider FIA Tech has made improvements to its trade data network (TDN) to support the operational resiliency needs of clearing firms on the platform.

The TDN is a shared ledger of trading information, designed to address the fragmentation in post-trade processing of exchange traded derivatives (ETDs). The TDN initiative currently includes 16 banks/brokers and over 40 investment managers and hedge funds with over $27 trillion in combined assets under management.

Users of the TDN can now replicate and store all trading activity at any exchange connected to TDN, supporting a quicker recovery in the event of a systemic outage (like a cyberattack or technology failure). In a press release, FIA Tech said that it had successfully completed a stress test on the platform, demonstrating the ability to securely capture and replay five trading days of activity in under four hours.

The initial rollout of TDN is focused on allocations processing and trade confirmations, with trade lifecycle transparency across the multiple brokers and the clearinghouse on each trade. Now, the company says that it is focused on adding capability and scalability to support operational resiliency.

Two-thirds of FCMs plan to expand memberships as high rates boost revenues—Acuiti

Almost two-thirds of futures commission merchants (FCMs) plan to expand their number of clearing memberships over the next three years, according to a study by Acuiti. Rising interest rates alongside increasing market volumes have swelled potential revenues for sell-side derivatives clearing firms by hundreds of millions of dollars.

This follows a long dry spell for FCMs, with ultra-low interest rates suppressing revenues for decades and support programs by central banks keeping volumes low. The number of FCMs globally dropped from around 170 before 2008 to 70 today.

But the Acuiti study suggests that new players may soon enter the fray, with crypto assets and retail market entrants mulling clearing memberships to expand their offerings.

LTX unveils new RFQ+ protocol

LTX, Broadridge’s bond trading platform, has launched a trading protocol to facilitate larger trades. RFQ+ builds on the industry standard RFQ protocol using liquidity aggregation capabilities to allow buy-side market participants to fulfil a block in one session with multiple dealers.

The AI-enabled workflow collects multiple dealer responses for their desired amounts with the aim of executing large trades with minimal information leakage.

Dealer selection scores allow a buy-side market participant to influence the number of dealers who receive their RFQ, based on dealers’ real-time and historical inputs and behavior. Multiple dealer responders can bid or offer for the size they want, and demand or supply is aggregated to allow the buy-side client to execute the block in one session with multiple dealers.

LTX also recently launched BondGPT, a tool which uses OpenAI’s GPT-4 large language model to assist users with the identification of corporate bonds.

Caisse des Depots taps Confluence to manage shareholding disclosures

Confluence has won a tender to manage shareholder disclosures and regulatory forms for the asset management department of French public sector bank Caisse des Depots.

With reporting demands becoming more stringent in Europe and around the world, financial institutions are increasingly turning to regtech solutions. A report by compliance technology company SteelEye found that 73% of firms expect to invest more money in regtech this year.

You can read more about how banks are implementing regtech solutions here. 

Aite-Novarica Group and RBR become Datos Insights

Research provider RBR and advisory firm Aite-Novarica Group have rebranded as Datos Insights following a merger. Under the new name, the company will provide data and advisory offerings to the financial services technology industry, among others.

As part of the re-branding, Datos Insights announced several updates to their insights and advisory services, including open access to reports and webinars for subscription clients of the former Aite-Novarica Group as well as data services which have expanded to cover more sectors.

Genesis Global certified as Soc 2 Type 2 compliant

Application development platform Genesis Global is now compliant with Service Organization Control (Soc) 2 Type 2. The standard, which is defined by the American Institute of Certified Public Accountants, evaluates an organization’s cybersecurity controls.

The low-code application development platform, software solutions, and services offered by Genesis Global are used by banks, asset managers, wealth managers, exchanges, and other infrastructure providers. It has applications for risk management, portfolio management, and compliance.

Soc 2 is a measure of a service organization’s controls in relation to data security, confidentiality, and privacy. It requires an independent audit to verify that rigorous safeguards are in place to protect client data.

Genesis achieved Soc 2 Type 1 certification in March 2022.

Yieldbroker partners with EOSE on market data

Electronic trading platform Yieldbroker has partnered with data company EOSE on market data sales and distribution initiatives. Yieldbroker’s marketplace combines interdealer and dealer-to-client liquidity for Australian and New Zealand debt securities and derivatives. The company sources market data from its trading platform, with pricing feeds and historical pricing data across bonds, credit, interest rate derivatives, bank bills, and repos.

In a press release, Yieldbroker said it plans to increase its presence in EMEA and the Americas.