MiFID II set to increase electronic trading
19 March 2019 Stamford
Image: Shutterstock
The second Markets in Financial Instruments Directive (MiFID II) is set to make the European corporate bond market more transparent, and likely more electronic, according to Greenwich Associates.
However, the financial services advisor suggested that investors are waiting to see what this means for liquidity in the market longer term.
A new report, European Corporate Bond Trading: Impacts of MiFID II, found that more than half of investment-grade corporate cash bond trading volume is now conducted electronically in Europe, topping the 19 percent of electronic volume in the US.
According to the report, MiFID II is expected to push even more European business to electronic venues, as dealers try to minimise high compliance costs with new technology platforms.
It also revealed that regulators expect this and other changes caused by the directive to make markets more transparent and competitive.
However, industry players are concerned that the prices of success for increased transparency could be reduced level of liquidity in products like corporate bonds.
Brad Tingley, market structure and technology analyst at Greenwich Associates and author of the new report, said: “Despite these concerns, increases in dealer competition should ultimately result in tighter spreads.”
Even before the implementation of MiFID II, European fixed-income investors were experiencing reductions in corporate bond market liquidity.
The report found that institutional investors in search of consistent liquidity are looking to alternatives such as single-name credit-default swaps and corporate bond exchange-traded funds.
Tingley added: “Investors are taking these steps to ensure liquidity in the short term. Over a longer-term horizon, increases in transparency and efficiency brought on by MiFID II and the continuing electronification of market will be a long-run benefit for all involved.”
However, the financial services advisor suggested that investors are waiting to see what this means for liquidity in the market longer term.
A new report, European Corporate Bond Trading: Impacts of MiFID II, found that more than half of investment-grade corporate cash bond trading volume is now conducted electronically in Europe, topping the 19 percent of electronic volume in the US.
According to the report, MiFID II is expected to push even more European business to electronic venues, as dealers try to minimise high compliance costs with new technology platforms.
It also revealed that regulators expect this and other changes caused by the directive to make markets more transparent and competitive.
However, industry players are concerned that the prices of success for increased transparency could be reduced level of liquidity in products like corporate bonds.
Brad Tingley, market structure and technology analyst at Greenwich Associates and author of the new report, said: “Despite these concerns, increases in dealer competition should ultimately result in tighter spreads.”
Even before the implementation of MiFID II, European fixed-income investors were experiencing reductions in corporate bond market liquidity.
The report found that institutional investors in search of consistent liquidity are looking to alternatives such as single-name credit-default swaps and corporate bond exchange-traded funds.
Tingley added: “Investors are taking these steps to ensure liquidity in the short term. Over a longer-term horizon, increases in transparency and efficiency brought on by MiFID II and the continuing electronification of market will be a long-run benefit for all involved.”
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