European investors bite nails over MiFID transparency
05 February 2013 London
Image: Shutterstock
Over half of European investors who were polled said that the MiFID II (Markets in Financial Instruments Directive) proposal to force all quotes in fixed income instruments to be firm and disclosed to the market will have a negative impact on trading activity and reduce liquidity, according to new research from the Association for Financial Markets in Europe (AFME).
In AFME’s Investor Survey of Fixed Income Liquidity, 56 percent of investors said that they believe the MiFID II pre-trade transparency regime will have a negative impact on market activity.
The fixed income market continues its migration from voice to electronic trading, “though more slowly than previously envisaged,” said AFME. More than one third of respondents said that electronic trading has increased over the past two years and 39 percent expect it to increase over the next 12 months. However, this growth is evolving from a low base. In 2012, 55 percent of investors conducted no more than 40 percent of their trades electronically.
The findings also show that over half of investors believe a choice of both electronic and voice methods of trading is necessary in order to maintain optimal market liquidity. Compared to the large investors, a significant proportion of small investors (23 percent) believe that voice is the only method of trading necessary to maintain optimal market liquidity.
Christian Krohn, a managing director at the AFME, said: “The European Council and Parliament amendments to limit MiFID requirements to trades below a certain size are to be welcomed. However the council proposal to broaden the scope to illiquid instruments will still hamper trading activity.”
“The survey also demonstrates the need to maintain the choice of both voice and electronic as methods of execution, which is seen by fixed income investors as essential to maintain optimal market liquidity.”
He added: “Proposals to force all over-the-counter voice trading to take place under MiFID’s proposed transparency rules will remove this flexibility and will have unintended damaging effects on liquidity.”
In AFME’s Investor Survey of Fixed Income Liquidity, 56 percent of investors said that they believe the MiFID II pre-trade transparency regime will have a negative impact on market activity.
The fixed income market continues its migration from voice to electronic trading, “though more slowly than previously envisaged,” said AFME. More than one third of respondents said that electronic trading has increased over the past two years and 39 percent expect it to increase over the next 12 months. However, this growth is evolving from a low base. In 2012, 55 percent of investors conducted no more than 40 percent of their trades electronically.
The findings also show that over half of investors believe a choice of both electronic and voice methods of trading is necessary in order to maintain optimal market liquidity. Compared to the large investors, a significant proportion of small investors (23 percent) believe that voice is the only method of trading necessary to maintain optimal market liquidity.
Christian Krohn, a managing director at the AFME, said: “The European Council and Parliament amendments to limit MiFID requirements to trades below a certain size are to be welcomed. However the council proposal to broaden the scope to illiquid instruments will still hamper trading activity.”
“The survey also demonstrates the need to maintain the choice of both voice and electronic as methods of execution, which is seen by fixed income investors as essential to maintain optimal market liquidity.”
He added: “Proposals to force all over-the-counter voice trading to take place under MiFID’s proposed transparency rules will remove this flexibility and will have unintended damaging effects on liquidity.”
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