ULLINK launched its smart order router in 2009 after the first Mifid rules took effect across Europe but the technology firm has dramatically enhanced its SOR to support the second wave of the European regulation.
Richard Bentley, chief product officer at ULLINK, told Global Investor Group Mifid II presents a greater challenge to ULLINK clients than its predecessor.
“The regulation under Mifid II is much more ambitious than Mifid I, it covers a broader set of asset classes and fixed income in particular is heavily impacted. The prescriptive nature of best execution under Mifid II obliges the sell-side as well as the buy-side to be compliant with this requirement.”
Mifid II is multi-faceted but, for ULLINK clients, the greatest challenge is dealing with the plethora of new trading venues, such as large in scale venues and new block trading models.
Bentley said: “Systematic internalisers did exist after Mifid I but Mifid II has breathed a new lease of life into SIs, while there are other venues like continuous auctions or auctions on demand. Together these venues will mean a further fragmentation of liquidity.”
The rules will impact both institutional and retail brokers alike: “We have been working with the largest sell-side firms that are supporting the large institutional-type flows. There is however also a real gap and opportunity around retail flows.”
Mifid II imposes tough rules around firms trading on electronic fixed income, derivatives and equity venues.
“If you think about the post-trade order record-keeping requirements, firms need the capability to track the chronology of client orders as they are executed by brokers. One big complexity is how do you capture the relevant information and glue that together to get the complete picture,” said Bentley.
Connectivity to trading venues is one of ULLINK’s strengths. “If you look at the electronic fixed income space, there are at least 100 electronic venues out there so we do have to make choices about which to connect to and part of that is customer driven. Similarly, we have taken the view to connect to a number of APAs, and we have to make a decision about how to prioritise these,” said Bentley.
A recent example of a new ULLINK connection is Mexico’s Bolsa Institucional de Valores (BIVA), a new securities market that launched in late 2017.
But it was the European exchanges’ Mifid upgrades that were keeping ULLINK busy in the latter part of 2017. “We have managed nearly 40 exchange go-lives in the past few weeks, so it’s been an intense period for us. We have to build the software, certify it and deploy it.”
But, for Bentley and his clients, Mifid represent various challenges.
“When I think about Mifid II, I think about resilience and compliance. Brokers may be receiving the correct messages but are they resilient? Exchanges can deliver their exchange gateways but are they reliable?
“When we think about compliance, firms may be able to handle the appropriate message formats but does that make them compliant? There is variation among clients, some have been very proactive in their preparations whereas others have been later in understanding what they need to deliver. It is true there are different levels of compliance and maturity.”
Bentley, like many of his peers, expects some forbearance on the part of European national authorities.
“The regulators understand this is a big piece of regulation and there are elements that are still opaque. I believe the industry will be resilient but it will take time to get everyone on the same page.”
But Mifid also presents opportunities, Bentley said.
“If you look at the work we had to do for Mifid II, there were a lot of technical enhancements that we had to do including micro-seconds timings. We are also looking at where the clients need new capabilities or new products. There is further that we can go in transaction reporting. Fixed income is a little bit behind everyone else in terms of systematic internalisers or trade repositories for example.”
ULLINK is also looking to capitalise on a trend within its clients to align more closely their trading operations across different asset classes.
“We also believe we can further enhance our derivatives capabilities. Previously many clients run separate derivatives and equities platforms but now they are looking to combine those across low-touch electronic execution and high-touch, care order management. We are doing a lot of R&D in this area,” said Bentley.
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