MiFID 2: Impact of Dark Caps on Algorithmic Trading Strategies


Dark trading in Europe is expected to be fundamentally altered by the implementation of MiFID II/ MiFIR. The proposed cap on dark pool volumes will require all institutional investors to reevaluate how they interact with dark liquidity, but for some the impact of the changes will be greater than for others. This research examines the potential impact on a variety of algorithmic strategies. In particular we focus on the varying degrees to which different strategies participate in dark trading and how much of that volume is traded in sizes which qualify for the Large In Scale (LIS) waiver and so are exempt from the cap.

The New WM/Reuters Fixing Methodology Doesn’t Fix Everything

At the 2015 Profit and Loss London Conference, ITG’s Jim Cochrane, Director, ITG Analytics, was a panelist on the debate “The New Fix Regime.” The panel’s task was to judge if the recent changes in the fix methodology had a material impact on competition, transparency and market conduct. These changes were only instituted February 15th of this year, making a final judgment premature. However, it is not too early to observe that transparency and directional trading costs are still problems that international portfolio managers will have to confront if they aim to keep up with the competition while fulfilling their fiduciary responsibilities. Asset managers will have to pay a spread or use a combination of matching and algo trading to reduce costs.

Listen to the call

Expect the Unexpected as Europe Prepares to Unbundle


Unbundling is coming to Europe. It will be impactful for both the buy-side and the sell-side. It will change the face of research and by extension alter how asset managers execute their order flow. The extent of changes will be understood in the coming weeks when the European Commission (the Commission) publishes the final regulations for approval by the European Parliament and European Council. There are also rumours that the Commission will publish a consultation on unbundling investment research. In this article we examine what changes are likely as well as how planned reforms will impact market practices. We also take the opportunity to remind ourselves how we got here and what the remainder of the journey looks like.

Shining a light on the importance of dark pools

This piece was originally published in The Financial Times.

As we enter the seventh year of a post-financial crisis world, it is hard to think of an area that has not suffered a knee-jerk reaction from politicians and regulators.

Certainly the scale of the subprime mortgage crisis, strained bank balance sheets and indebted sovereigns demanded urgent action. But as reform has been sprayed indiscriminately around the industry, solutions have been found to problems that did not exist.

French Regulator Issues Algo Trading Notification Requirement

A little over a week ago, the French Autorite des Marches Financiers (“AMF”) published guidance on certain notification requirements relating to the use of algorithmic strategies for trading in certain French securities. The notification requirement comes into force on 1st January, 2015.

Based on conversations we held with the AMF late last week, we understand that they consider this new rule to be a precursor to the algorithmic trading strategy notification requirements included in the overhaul of the European Union’s Markets in Financial Instruments Directive (“MiFID II”). Whilst we do not doubt the AMF’s resolve to impose an algorithmic trading strategy notification requirement on market participants as part of the MiFID II package, we query if other national regulators such as the U.K.’s Financial Conduct Authority will use their powers under MiFID II to follow a similar approach to the AMF’s.

Examining the WM/Reuters London Close through the Prism of Foreign Exchange Transaction Cost Analysis

Please find this article referenced in the Wall Street Journal.

Responding to many client requests, the FX team at ITG Analytics reviewed trade data surrounding the WM/Reuters London Closing Spot Rate Service (“the fix”). By observing the factors that influence trading costs using ITG TCA® for FX’s rich quote data we found trade patterns that were unique. Consistent with academic literature,we show that volume and volatility around the fix spikes and the spread costs tighten temporarily. In addition, we see mean reversion of the FX rates on days when there is substantial price pressure shortly prior to the fix. Our analysis does not prove the allegations of manipulation brought about by some market participants.

MiFID II: Worth the Wait, or a Missed Opportunity?

This piece was originally published in Best Execution magazine.

On the 14th January the European Parliament and Council of Ministers finally agreed a new directive to update rules for markets in financial instruments (MiFID II). Rob Boardman, CEO of ITG Europe asks whether it was worth the wait?

Living in the Post- MiFID II World

On January 14th, Michel Barnier, the European Commissioner in charge of financial services in the European Union (EU) welcomed the agreement in principle reached on rule changes to the Markets in Financial Instruments Directive (MiFID II/ MiFIR).  Barnier declared that although the speed of implementation was not ambitious enough, the agreement still represented “a key step towards establishing a safer, more open and more responsible financial system and restoring investor confidence in the wake of the financial crisis” (see: http://europa.eu/rapid/press-release_MEMO-14-15_en.htm?locale=en).

German Federal Elections and the Impact on the European Agenda

With the German Federal Elections occurring Sunday, European investors are curious about what impact the elections may have on the European regulatory environment. In this version of The Blotter, ITG's European General Counsel, J.P. Urrutia, summarizes some of the expected results and potential impacts, highlighting Germany's importance to regional policy.

European Financial Transaction Tax suffers a severe setback

In this edition of The Blotter, Juan Pablo Urrutia, European General Counsel, weighs in on the Financial Times report that The Council Legal Service is advising the national governments that the European Financial Transaction Tax (FTT) is illegal.

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