Transparency — pre- and post-trade — is one of the pillars of MiFID II. Like so much of this far-reaching directive, there are challenges and opportunities.
One of the most significant changes facing financial institutions under MiFID II rules applies to the pre- and post-trade transparency regime of EU financial markets.
The directive extends the current transparency requirements to other equity-like and non-equity instruments on any trading venue, including multilateral trading facilities (MTFs) and organized trading facilities (OTFs).
Transparency in a MiFID II context effectively means increased visibility and openness around trading, pricing and venues.
Increased visibility cuts both ways: your firm will be able to see other dealers’ quotes and trades — and they will be able to see yours.
As visibility increases, so will competition.
Visibility of other dealers’ quotes and trades — whether from trading venues or OTC data provided via the approved publication arrangements (APAs) — will help with price discovery.
But trading firms will need to build strategies about how to use this data to price products based on visible market activity and how the competition will react to visible quotes.
Thresholds for transparency
Despite large visibility between firms, some quotes can remain private, depending on the size of the deal.
So now the size of a quote may well factor into the trading strategy in a way it never did before.
This threshold adds a new strategic dimension to both buy- and sell-sides as institutions decide when to select quote sizes above and below transparency size thresholds.
Managing responses to a request for a quotation, balancing size, timeliness of execution, and choice of participants in the process and risk of market impact will be new competitive tools.
Real-time market data
Trading firms need to factor in how the various order and requests for quote protocols operate by venue as well.
Competing with other banks on an MTF, depending on the protocol, means your firm can pick a strategy to price and then choose to react to competitor quotes depending on your firm’s appetite for risk in the instrument.
To successfully navigate this new environment, institutions will need to have access to the broadest and most up-to-date real-time market data, both on the desktop and within your firm’s pricing tools for streamed pricing, quoting and price benchmarking tools.
We are helping our customers leverage smart, more connected data and analytics to not only go beyond MiFID II compliance but to comply and thrive.
We offer a vast amount of fully transparent reference data that can enhance your firm’s transparency, helping you to achieve full compliance with MiFID II and pre- and post-trade transparency.