The FIX Trading Community EMEA conference opened with Verena Ross, Executive Director, ESMA, as the keynote who set the stage for the event by bringing clarity on how the industry can move forward in the event of a no-deal Brexit.

Verena’s message touched on the main areas of how ESMA is preparing for a no-deal Brexit scenario in an effort to limit the risk to financial markets ahead of 29^th March. She also shared examples surrounding the framework of MiFID II/MiFIR implementation under the transparency regime provisions, including the unbundling of research and the costs absorbed directly by asset managers.

Verena then touched on the importance of LEIs and their essential role in market surveillance and transparency. She stressed the importance of data quality and data standards, and how there is still a need for a Consolidated Tape Provider (CTP). Verena’s speech ended with the connection between Brexit and MiFID II and the impact Brexit will have on the transparency regime to suit the EU27 requirement.

Speakers:
Matthew Coupe, Co-Chair EMEA Regional Committee & EMEA Regulatory Subcommittee, FIX Trading Community, Director, Barclays Investment Bank
Philippe Guillot, Managing Director, Markets Directorate, Autorité des marchés financiers (AMF)
Fabio Braga, Manager, Trading and Post Trade Policy Team, FCA
Rebecca Healey, Co-Chair EMEA Regulatory Subcommittee, FIX Trading Community, Head of EMEA Market Structure and Strategy, Liquidnet

The morning followed with the session – ‘Brexit – What next for the Industry’, to address the practical implications of what firms now need to do, and how they will trade after liquidity settles. The panel discussed the challenges of Traded on a Trading Venue (TOTV), Financial Instrument Reference Database Systems (FIRDS), market data, Share Trading Obligation (STO) and liquidity. It was acknowledged that there are systemic challenges ahead, and the unpredictable political climate continues to provide uncertainty. When it comes to complying with any future requirements, regulators are aware that it can be harder for small firms to comply with what is coming but have higher expectations for larger firms. When it came to TOTV and the possible fragmentation between the UK and the EU with regard to transaction reporting, there were no quick solutions; all agreed that a no-deal Brexit would create challenges for trade reporting.

With ESMA phasing out UK data over time, the issue of cleaning up market data was seen as critical as the risk of divergence increases, depending on market structure post-Brexit and the ability of firms to trade cross-border in a different way. The FCA has issued a Post Trade Transparency Policy and encourages firms to engage on roundtables with the FIX Trading Community shortly after Brexit in order to pick their way through the implications. The message loud and clear was to keep talking to regulators and to carry on interacting with the FIX Trading Community and trade associations over the coming months.

Moderator: 
Robert Barnes, Chief Executive, Turquoise

Speakers:
Ross Barrett, The Investment Association
Fabio Braga, Manager, Trading & Post Trade Policy, FCA
April Day, Managing Director, Head of Equities, AFME
Philippe Guillot – Directeur des marches, AMF
Tim Kreutzmann, VP of Legal, BVI

During this morning session on the evolving equity landscape, a panel of experts discussed a range of topics including how liquidity in dark pools has diminished whilst there has been an increase in activity in frequent periodic auctions; although there is still notable activity on non-lit markets. Post MiFID II, market participants have access to more data across a broader set of asset classes; we can see exchange traded funds, for example, in a way we couldn’t under MiFID I. It was noted, however, that we still have issues with the quality of market data, but from the data that we do have access to, it has been a story of evolution rather than revolution.

Concerns continue to persist about liquidity fragmentation and post trade transparency post Brexit, with many market participants frustrated with what they see as a lack of regulatory guidance around what to do in the absence of equivalence between the EU27 and the UK. Panellists also warned that some politicians seem to be using the share trading obligation rules to drive liquidity from the UK to Europe, which could see an increase in costs for end investors.

Moderator:
Richard Wire, Vice President, Market Structure, Securities Division, Goldman Sachs

Speakers:
Christoph Hock, Head of Multi-Asset Trading, Union Investment Privatfonds GmbH
Nick Philpott, Head of Market Structure, Standard Chartered
David Lawlor, Head of Regulatory Products, TP ICAP
Gareth Coltman, Head of European Product Management, MarketAxess

This session addressed the use of Market Data and the perspective, from both the sell side and buy side, on the benefit of the data transparency regime. Whether data is being used to input into pricing, trade surveillance or valuation of control, there is still a big need to understand and be educated on where the data is coming from and how best to use the data. The consensus from the session was that firms are having to become more data savvy and understand where they get the data from i.e. Trading Venues and the number of venues and further sources.

A further challenge is how to integrate the data into the trade lifecycle. Additionally, the consensus was that the cost of data is still relatively high (in particular in Fixed Income) and the industry challenge remains on how to collate and aggregate the data and turn that data into something meaningful. The three main concerns from the panellists regarding data transparency were the underlying quality of the data, the source from where it comes and consistency on how the data gets reported.

Moderator:
Huw Gronow, Head of Dealing, Newton Investment Management (Chairperson of the EMEA Investment Management Subcommittee, FIX Trading Community)

Speakers:

Christoph Hock, Head of Multi-Asset Trading, Union Investment
Matthew Cousens, Head of EMEA Execution Sales, Barclays
Severine Vandelanoite, Senior Vice President, Products and Regulation, Deutsche Borse
Jon Finney, Director of European Business Development, Citadel Securities
Mark Hemsley, President, CBOE Europe

In a panel session on the practitioner outcomes for the evolving equity landscape, there were similar points made from the earlier equity stream, making it clear that these are the issues that are at the front of everyone’s minds. Panellists discussed how a lack of clarification on the Share Trading Obligation (STO) was causing serious concerns for the market. One panellist stated that a further assessment was needed with specific regard to the ‘trading on a trading venue’ (TOTV) rules, and how badly both liquidity and post trade fragmentation across Europe could become. The cost to the buy side (and the end investor) was underscored once more. The appropriate use of frequent periodic auctions and systematic internalisers was again discussed in this session, where panellists felt the regulator should simply look at execution quality, as it is the job of a buy-side trader to deliver ‘best in class execution’ to both portfolio managers and investors.

MiFID II has given a complex, but widely-understood, set of rules to follow for buy-side traders and concerns were raised about any subsequent plans to change this yet again. The buy side stated that it is essential for the regulator to appreciate the complexity of price formation, specifically, concerns relating to information leakage, of secondary markets and the reason that traders use systematic internalisers. Regulators were encouraged to look at the trading ecosystem as a whole, as opposed to focusing purely on one or two trading methods.

Moderator:
Carl James, Global Head of Fixed Income Trading, Pictet Asset Management

Speakers:
Sassan Danesh, Managing Partner, Etrading Software Ltd
Ian Morgan, Managing Director Head of Sales EMEA, Fenics UST
Mario Muth, Head of Electronic Trading, Deutsche Bank
Paul O’Brien, Senior Product Manager, MTS Markets

This fixed income session reflected on the eco structure which isn’t new but is ever evolving. It addressed the recent trend in the market of having to be more innovative in using technology in order to aggregate the data and for the liquidity takers to look at new ways to better connect with liquidity providers to access their liquidity. The panellists highlighted how more asset managers are investing in technology to automate their trade flows, in particular on fixed income government bonds.

Asset managers are now looking at alternative trading methodologies such as streaming prices, firm pricing, high frequency trading (HFT) and alternative liquidity providers in addition to the trading Request for Quote (RFQ) protocol.  The methodology chosen continues to depend on the liquidity chain of the product. The traditional RFQ continues to be used widely, but the direction of travel is leaning towards modernising and looking at new ways to facilitate alternative pricing and sources of liquidity.

Moderator:
Matthew Coupe, Co-Chair EMEA Regional Committee & EMEA Regulatory Subcommittee, FIX Trading Community, Director, Barclays Investment Bank

Speakers:
Carl James, Global Head of Fixed Income Trading, Pictet Asset Management
Ivan Mihov, Head of Buy-Side Fixed Income EMS, Axe Trading
Jonathan Gray, Head of Fixed Income (EMEA), Liquidnet

In a panel session on finding the alpha in execution, delegates heard how MiFID II has pushed more trading electronically, but traders still want options – including voice trading for larger trades. The regulation has incentivised buy-side traders to ‘show their workings’ which has been good for the end investor. The panellists discussed how there has been a blurring of the Portfolio Manager and dealer role within fixed income; while dealers still aren’t taking the end decision, they are increasingly being asked to put forward ideas about the best way to gain exposure to a wide selection of asset classes.

When discussing technological advancements, attendees heard how buy-side trading desks can increasingly become a source of alpha thanks to new technology and understanding of complex data sets. However, the industry needs to do more work on API development and integration. There have been many platform launches, but concerns remain about connectivity and levels of sophistication. Panellists said that technology is also enabling liquidity to come to the trader for the first time, which allows traders to be further up the curve. It means that dealing desks are able to discuss a much broader range of options with portfolio managers prior to execution.