Mehmet Kinak, global head of systematic trading and market structure at US-based asset manager T. Rowe Price, has thrown significant doubt at the new European trading landscape under MiFID II.
During a panel discussion with Richard Parsons at this year’s TradeTech conference, Kinak pointed to the emergence and increasing popularity of new trading venues such as systematic internalisers (SIs) and periodic auctions as evidence that the new environment has changed in name only since the removal of broker crossing networks (BCNs).
“They are the same thing but with a different name and more complexity. As an institution, we cannot show our hand,” he said.
“The notion that lit liquidity is the best liquidity is not right, because there are too many market participants that take information and use it to their benefit. I urge regulators to speak with the buy-side more. Returning good performance to asset owners via this complexity is very difficult. If we need to use periodic auctions and SIs for anonymity, then that’s what we’ll do.”
The delayed introduction of the double volume caps (DVCs) on dark pool trading has meant a shift in broker behaviour, as some are engaging with SIs, while using periodic auctions to source liquidity is more challenging, according to Kinak.
“A lot of brokers are saying now they cannot source liquidity, but they can provide it and that’s a big differentiation. Some will do that very well but others will fail. For me, in terms of the current winners and losers, agency brokers have won early on because it’s about sourcing liquidity and the buy-side is reluctant to use the SI regime and principle liquidity,” he added.
Kinak did not hold back when addressing the wider subject of the new regulatory regime, describing the early days so far under MiFID II as “a mess”.
“When it comes to MiFID II, who is better off? I don’t think lit markets would say they are better off, and the buy-side and asset owners aren’t either. In US markets, you could tell early on we were going to be a principle driven market, like with the SI regime,” he said.
Pointing out that while the new regulation has increased transparency for asset owners and managers, which he described as “very ideal”, Kinak said that the idea of moving markets to lit venues doesn’t provide asset managers “anything palpable”.
The emergence of venues such as periodic auctions and SIs have seen the European markets become more complex and fragmented, further fuelled by the increasing popularity of large-in-scale (LIS) trading venues, a subject that was discussed across a number of panels throughout the two-day conference.
“If trading in size you can be anonymous and liquidity is found in the dark space where we gravitate to early, and then we try the single dealer pools. Europe previously looked like US markets where you would gravitate to broker crossing networks (BCNs) and then to exchanges, but now it’s much more complicated. There’s no sense,” Kinak remarked.