Smart data and analytics provider big xyt has launched Liquidity Cockpit, which give market participants more information on dark and lit trading activity as new regulations will restrict trading in dark pools.
MiFID II, which comes into effect in the European Union at the beginning of next year, places double volume caps on dark pool trading. However Large In Scale (LIS) trades above a certain size specified by the European Securities and Markets Authority are exempt. The caps on dark pool trading are 4% on any single venue and 8% market-wide in any 12-month rolling period, but there is no consolidated tape providing data on trading volumes across the European Union.
Robin Mess, chief executive at big xyt, told Markets Media that the firm had been developing Liquidity Cockpit for three months after first being approached by trading venues who were asking for data to ensure compliance with MiFID II.
Cloud-based Liquidity Cockpit will provide an overview of market share across all major European venues, including LIS categorised trades in line with Esma thresholds.
Mess said: “We have used data from Activ Financial to develop pan-European capabilities.”
In July last year big xyt and Activ Financial, which provides real-time, multi-asset financial market data, launched Activ X-ray, a cloud-based tick data repository with historical information from more than 80 global trading venues. Therefore, clients can access the data and receive analytics without investing in infrastructure for data capture and storage.
Liquidity Cockpit has an interactive dashboard which uses visualisation tools so users can review data by security, venue, index, trade condition or share of LIS trading across European trading venues in real time.
“Using Liquidity Cockpit now helps clients answer questions about MiFID II and decide how their business should be adjusted,” added Mess.
For example, the buyside can test the market impact of trading strategies and brokers can test algorithms they are developing for MiFID II.
“One of the areas in which we are investing is post-trade indication of price to help users meet MiFID II best execution requirements,” added Mess. “Liquidity Cockpit can initially be used for cash equities and exchange-traded funds but we can include data from any source and size.”
MiFID II extends the original directive from equities into other asset classes, including fixed income, where Liquidity Cockpit could be used if there is sufficient data.
“Spot foreign exchange has huge volumes and needs transparency so execution can be optimised,” said Mess. “That will be published very soon.”
As Liquidity Cockpit launches, Thomson Reuters has also enhanced its Tick History data service to help comply with MiFID II by including additional reference data fields to capture the new data sources and venues.
Brennan Carley, global head of enterprise proposition and product management at Thomson Reuters, said in a statement: “The markets have moved towards greater use of quantitative, passive and systematic investment strategies, and inclusion of quantitative factors in fundamental investment styles, all of which are driving the need for more data."
Last month the inaugural research paper from Plato Partnership, the not-for-profit industry group representing asset managers and broker dealers, examined the potential impact of double caps on dark trading and the closure of broker crossing networks under MiFID II. Brokers will not be able to cross internal flows without registering as a systematic internaliser.
Professor Carole Comerton-Forde, Professor of Finance at the University of Melbourne and author of the paper, said that in order for the buyside to be ready for MiFID II, they should look for trades which are eligible for the LIS or order management facility waiver. In addition, the buyside should carefully evaluate the merits of new venues and new order types to ensure they understand the costs and benefits of these new trading options, and the extent to which they assist in sourcing liquidity and minimising information leakage.
The paper continued that choices will need to be made about how to achieve the best possible trading outcomes given the potential fragmentation of block trades across multiple venues and there needs to be discussion on how algorithms and smart order routers will be adjusted when dark trading is shut down in certain stocks.
Comerton-Forde added that that MiFID II will provide a wealth of new data which will assist with evaluation of trading outcomes. “The buyside should consider the most effective ways to exploit these data to their advantage,” she said.
