The record block trade of €72.5 million on Cboe LIS happened on 11 February, the exchange confirmed in a statement on social media.

Cboe said in the social media post that the record transaction on its platform demonstrated “the benefits of having competition back in Swiss equity markets”.

The new record for Cboe’s block trading platform follows the reintroduction of Swiss securities to UK-based trading venues after Switzerland and the UK reached an agreement on exchange equivalence last month.

More than 200 Swiss-listed stocks had been removed from trading venues across the UK and Europe following the European Union’s decision not to renew Swiss equivalence in July 2019. The London Stock Exchange Group, Aquis Exchange and Cboe Europe readmitted Swiss stocks for trading via multilateral trading facilities (MTFs) on 4 February.

“This will bring back competition, choice, and a full range of execution mechanisms to one of the region’s biggest equity markets, greatly benefitting our participants, as well as end investors,” said David Howson, president of Cboe Europe, as Swiss stocks were re-listed.

Last month, Cboe completed its acquisition of BIDS Trading which it worked closely with to develop Cboe LIS in 2016 before the introduction of MiFID II in Europe. Block, or large in scale (LIS) trading, has surged under the regulatory regime as traders can benefit from waivers allowing them to negotiate transactions without pre-trade transparency.

The European equities trading landscape has shifted since the end of the Brexit transition period last month. Roughly €6 billion in daily volumes moved away from London in the UK towards European trading venues in Amsterdam and Paris.

Speaking to The TRADE about the developments, Howson said Swiss share trading would provide “a nice bump to the UK platforms”, describing it as “an eagerly awaited return for us and our customers”.

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Speaking to The TRADE, Dr Robert Barnes, global head of primary markets at the LSEG and CEO of Turquoise, said that the profile of the Turquoise Plato dark pool has evolved over time from mainly small sized trades several years ago in 2016, to the majority of activity being large-sized electronic blocks in the first quarter this year.

Statistics from Turquoise and Rosenblatt Securities seen by The TRADE show that just 3% of activity on Turquoise Plato was executed through conditional midpoint block workflow via Turquoise Plato Block Discovery in 2016, but that has now surged to more than 50% of activity in the dark pool.

At the height of the crisis on 9 March this year, now dubbed ‘Black Monday 2020’, the percentage of activity executed in Turquoise Plato that was matched via its block trading platform soared to a significant 59%. Barnes said that the figures show that the market has evolved so that larger sizes can now trade efficiently during times of extreme volatility.

“We hear a lot about the high volatility and high volumes, but in a way, we have always known that order book turnover tends to scale with volatility,” Barnes commented. “However, we have seen an underlying change in the profile of how the business is getting done, even in these extraordinary times.

“The insight is that during these times when the markets are becoming volatile, prices are moving a lot, and bid-offer spreads are widening, it has become more straightforward to get business done by trading blocks. The data clearly shows how the industry has changed from trading at midpoint in small-sizes, to executing electronic block trades at the midpoint.” 

Block trading has steadily increased in recent years, driven mainly by MiFID II’s double volume caps (DVCs), which limits transactions that can be executed under waivers at 4% at a trading venue level and 8% for all EU trading venues, leading to the number of orders executed above the Large in Scale (LIS) threshold has increased significantly.

LIS trading under MiFID II benefits from waivers enabling participants to negotiate trades without pre-trade transparency. Ahead of the implementation of MiFID II in 2018, major European exchange operators including Cboe, LSEG and Euronext, launched block trading platforms to meet the demand for LIS services.

MiFID II also brought about more transparency through the pre- and post-trade transparency regime. As a venue, Turquoise must time stamp each trade to the precision of one microsecond meaning that investors can see the activity happening in the order books. Barnes told The TRADE that this has boosted the quality of the market.

“Thanks to post-trade transparency, investors in Europe are now continuously able to see all of the activity happening in both the lit and dark order books,” he said. “With this enriched information, we are seeing much larger sized trades happening at a price, at a particular point in time, in real-time. This really adds to the quality of the market and shows that the innovation is working, as the buy- and sell-side community have come together to help investors get their business done.”

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The new record at Turquoise Plato Block Discovery is 22% higher than the previous record of €9.68 billion in October last year. According to Turquoise, eight of the top 15 record days on Block Discovery occurred in October, and nine of its top 10 record days, each above €600 million per day, occurred this year.

Speaking to The TRADE about the new record at Turquoise Plato Block Discovery, Robert Barnes, CEO of Turquoise, noted the increased activity on the platform happened despite the removal of 200 Swiss names from its stock universe in the summer after the EU decided not to renew Switzerland’s equivalence.

“The fact that we are setting records, despite the removal of more than 200 Swiss names in July, is a great reflection of the industry increasing use of the service designed in partnership to achieve best execution,” he said. “Features such as low-price reversion after the trade, consistently evidenced by independent venue performance analytics firms, have established Turquoise Plato Block Discovery as the market-wide convention. Customers also benefit from higher alpha capture and lower settlement fees that correlate with fewer number of tickets per same value when traded as a block.”

The Turquoise periodic auction, Turquoise Plato Lit Auctions, has also seen larger sized trades over the past year compared to other frequent batch auction venues, despite concerns from EU regulators around the size of trades in auctions, and that they are being used to circumnavigate the MiFID II double volume caps for dark trading.

“There has been discussion around frequent batch auctions being used as an alternative to dark pools, and the concern related to the small trade size the auctions tend to have. Our profile, in fact, looks very different compared to other auction venues. We have plenty of small sized-trades, but we also see trades of large size despite other frequent batch auctions not associated with large trade size,” Barnes commented.

On 31 October, Turquoise Plato Lit Auctions matched multiple large-sized trades above €1 million following the merger announcement of Fiat and Peugeot – with different firms on the buying or selling side of each trade.

“Unique liquidity also exists on Turquoise for AIM securities and Shanghai-London Stock Connect. The insight is that one is more likely to get a better result if one is interacting with Turquoise Plato Lit Auctions and this can be via inclusion of Turquoise Plato Lit Auctions as a venue in both dark and lit algo strategies,” Barnes concluded.

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Using Bloomberg Terminal, institutional investors will be able to trade on behalf of multiple funds in one block with the pre- and post-trade allocations. Bloomberg said the new function will streamline the workflow of large transactions and integration with existing order management systems.

Bing Li, head of Greater China at Bloomberg, said that the firm has seen a significant increase in foreign activity in Chinese bonds since the beginning of the year, with the Bond Connect initiative allowing overseas funds to buy onshore bonds through Hong Kong.

“We have been working closely with CFETS (China Foreign Exchange Trade System) and Bond Connect Company Limited to upgrade our offerings to facilitate further participation by foreign investors in this burgeoning market, and connect onshore market makers with the global investment community. This will help advance the further development of China’s financial market over the long-term,” Li added.

Bloomberg became the second approved trading platform to operate within Bond Connect after Tradeweb, providing a trading interface for offshore investors accessing the cross-border bond trading and settlement scheme that links the Mainland China and Hong Kong markets.

Tradeweb launched its own block trading functionality on Bond Connect in September, also allowing the buy-side to allocate and complete block trades to multiple client accounts. More recently, Tradeweb added live liquidity streaming and instant messaging functionality for clients trading on Bond Connect.

Foreign holdings of Chinese onshore bonds reached 1.11 trillion yuan as of May 2019, according to data from Bloomberg. At least 109.3 billion yuan of Chinese bonds were bought by foreign investors in May, the highest amount in the past year.

The liberalisation of China’s trillion-dollar financial markets presents an enticing opportunity to global investors. But what’s your view? Tell us your perspective and find out what other readers of The TRADE think of these new opportunities.

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The analysis found that dark pool volumes accounted for 9.1% of all on-exchange activity during April, the highest level that dark pool volumes have reached since October 2017, prior to the implementation of the regulatory regime, when they accounted for 9.2% of activity.

“While the amount of dark trading fell in the early months of MiFID II, it has gradually risen since the first set of caps expired in September 2018, reaching its highest level in April since before the implementation of the new regulatory regime,” said Tim Cave, analyst at TABB Group.

MiFID II’s double volume caps (DVCs), first introduced in March 2018 following an initial delay to implementation, are the biggest factor affecting volumes in dark pools in Europe. The DVCs trigger bans on dark trading when a transaction accounts for 4% of the total activity on a single dark venue, or 8% of total trading market-wide.

TABB Group’s analysis found that there has been a steady decline in the number of stocks affected by the caps, with 287 instruments suspended from dark trading as of May this year compared with a substantial 1476 stocks that were suspended in May last year.

At the same time periodic auctions, often seen as an alternative to dark pools, much to the dismay of regulators, saw market share decline from 2.9% of on-exchange activity in August 2018 to 2.2% in March this year as the number of instruments suspended by the DVCs has fallen. In April, periodic auction market share grew slightly to 2.4% and saw average daily above €1 billion for the first time since October 2018.

Market participants have criticised the move by regulators in Europe to curb dark trading, which allows for minimal market impact and in some cases can provide the best price for clients. Ahead of the implementation of the DVCs under MiFID II, major stock exchanges and institutions launched various periodic auction and block trading venues.

Block trading volumes also surged in April, according to TABB Group, reaching the third-highest level recorded with daily notional of €1.38 billion. Block trades accounted for 35% of all dark multilateral trading facility (MTF) trading in April, compared to 34% the month prior.

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A survey of 100 heads of trading across Europe at the end of last year found a majority of 77% agreed that periodic auctions provide better access to liquidity amid the double volume caps (DVCs), more so than block trading platforms, request for quote (RFQ) venues or systematic internalisers.

Widespread adoption of periodic auctions has been an unforeseen trend since MiFID II was implemented. Traders concur that despite regulatory concerns that the venue type is in some cases used to circumvent the dark trading rules, periodic auctions are beneficial in terms of showing natural liquidity, reducing costs and achieving best execution.  

In January, responses from the market on the European Securities and Markets Authority’s (ESMA) extensive research on periodic auctions revealed that the majority of trading firms oppose any further regulatory intervention on the venues.

At the same time, the research from WBR Insights also found a majority of 76% of senior traders agreed that conditional order types have become the most important trading strategy for navigating liquidity post-MiFID II, followed closely by algo wheels and liquidity-aggregating algorithms.

Conditional orders have risen in popularity in response to MiFID II’s limitations of dark trading. They allow firms to trade as usual, but when an opportunity to trade a large block arises, it can withdraw other orders allowing traders to take advantage of the large-in-scale (LIS) waiver.

“What’s clear here is not necessarily what order types are more frequently used (although it’s no surprise to see conditional orders top of the tree) but, the fact that the vast majority of participants have actually changed the way they trade in order to comply with best execution requirements, and make best use of the tools available to them to source fragmented liquidity,” Salvador Rodriguez, head of electronic trading at Instinet Europe, commented on the results.

MiFID II has also caused a shift in buy- and sell-side relationships, with WBR Insights’ report revealing that just 5% of respondents have not materially changed the brokers that they use. On the other hand, a significant 63% of senior traders said that they have now taken more routing and best execution decisions in-house.

“The ownership to the buy-side is evident with the results here. In particular, routing decisions has been the priority,” Susie Benaim, TradeTech Europe conference director, commented. “Given the development of smarter algos and better SORs (smart order routers), the ability to monitor these more complex trades has improved as well as the reporting ownership heightened.”

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BlackRock expressed major concerns in a recently published whitepaper that European Union policymakers are increasingly focused on shifting trading activity towards lit venues, and strongly disagreed with assumptions that this shift improves transparency and price formation.

The investment firm’s report warned the current debate around extending the tick size regime to SI quotes of all sizes, price improvements and execution prices, as proposed under the Investment Firm Review (IFR), could have major implications on midpoint trading.

“It is critical that these amendments do not interfere with an investor’s ability to execute at midpoint, which is essential for implementing investment decisions cost efficiently and keeping European equity markets globally competitive,” BlackRock stated.

“Systematic internalisers should be able to execute trades against their own capital at the midpoint, with full adherence to the tick size regime. This is particularly important for large-in-scale orders… The tick size regime should not interfere with investor’s ability to execute at midpoint even when this is a half tick. This is an essential feature for matching buys with sells fairly, and is common practice in markets globally.”

Midpoint trading occurs when buyers and sellers match orders at a midpoint price, providing savings relative to the best bid and ask prices on an exchange. The activity occurs on block trading platforms, periodic auctions and within SI venues.

BlackRock added that while it supports MiFID II’s ban on SIs crossing client-to-client flow as riskless principal in order to create a level playing field, SIs should be able to execute trades against their own capital at the midpoint, particularly for large-in-scale (LIS) orders. At the same time, the asset manager said that it agrees the tick size regime should be amended to enforce quoting in round ticks to remove trivial tick increments that provide little benefit to end investors.

“As policymakers consider amendments and clarifications to the MiFID regime, any changes should allow midpoint executions to take place across all venues. We recommend clarifying that execution at EBBO (European best bid and offer) midpoint is permitted when quotes adhere to the tick size regime,” BlackRock’s whitepaper concluded.

BlackRock is not the only market participant to have spoken out about the current threat to midpoint trading. Speaking to The TRADE in October about the SI regime under MiFID II, Matthew McLoughlin, head of trading at Liontrust Asset Management, expressed concerns around the potential changes to the tick size regime.

“The regulators have been looking at extending the tick size regime to cover SI flow, so price improvement could soon be a thing of the past,” he said. “There is a danger that this gets extended to LIS venues and periodic auctions, which would prevent a large amount of mid-point trading. This is definitely not in the best interests of investors.”

At the same time, Ben Springett, head of European electronic and program trading at Jefferies, stressed the importance for the industry to protect being to trade at midpoint.

“It’s a very valuable option for a range of different venues that use if it for a wide range of market participants, and is well established as a go-to option for many of the largest asset managers across the Continent,” he said.

Similarly, the Association for Financial Markets in Europe (AFME) co-authored a report alongside the London Stock Exchange and Cboe Global Markets last year, which said that applying the tick size regime to LIS orders and SIs could be massively detrimental to end investors.

“It is essential that institutional and retail investors seeking execution of orders can do so at the midpoint of the bid-ask spread,” the report said. “The midpoint is understood and accepted globally as a fair execution price, and European markets would be materially harmed (and out of step with global markets) should the ability to execute at the midpoint be constrained.”

AFME, LSEG and Cboe urged EU policymakers to consider that the application of the tick size regime is only relevant to below SMS (standard market size) executions, but almost always below LIS.

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Cboe Global Markets said that its block trading platform, Cboe LIS, set a new monthly record with average daily notional value traded of €348 million, up 27.7% from its previous record set in July this year.

The exchange added that total notional value traded on the platform reached a record €8 billion for large in scale (LIS) activity only in October, and Cboe LIS accounted for 22% of the block trading activity that took place on non-displayed venues throughout last month, according to data from big xyt.

“October was an exceptional month for Cboe LIS, which continued to be the fastest growing block trading platform in Europe,” Mark Hemsley, president of Cboe Europe, commented. “We have received positive feedback from both buy-side and sell-side firms who appreciate the diversified order flow, information leakage protection and seamless and easy to use nature of the platform.”

Similarly, the LSEG’s block trading platform, known as Turquoise Plato Block Discovery, also saw a new monthly record in October of €9.68 billion traded on the platform throughout the month, for both LIS and sub-LIS activity. For LIS activity only, Turquoise Plato Block Discovery traded €6.45 billion in October. 

“Turquoise Plato Block Discovery continues to see significant growth with record values traded on the platform during October at almost €10 billion,” said Robert Barnes, CEO of Turquoise. “Both buy- and sell-side participants are adapting to the new MiFID II environment and we are working in partnership with them to help improve overall quality of execution across European equity markets.”

MiFID II’s double volume caps (DVCs), which limits transactions that can be executed under waivers at 4% at a trading venue level and 8% for all EU trading venues, has seen the number of orders executed above the LIS threshold has increase significantly.

LIS trading under MiFID II also benefits from waivers enabling participants to negotiate trades without pre-trade transparency. Ahead of the implementation of MiFID II, major European exchange operators including Cboe, LSEG and Euronext, launched block trading platforms to meet the demand for LIS services.

For the week ending 12 October, statistics from Fidessa also revealed that a new record was set for value traded in blocks on all venues in Europe of €8.1 billion, beating the previous record set in May of €7.3 billion.

A record number of 7,063 block trades were also executed across all venue during that week, with Liquidnet seeing the highest amount of block trades, closely followed by the ITG POSIT and Turquoise Plato platforms.

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Statistics from Fidessa show that for the week ending 12 October a new record was set for value traded in blocks on all venues in Europe of €8.1 billion, beating the previous record set in May of €7.3 billion.

A record number of 7,063 block trades were also executed across all venues last week, with Liquidnet seeing the highest amount of block trades, closely followed by the ITG POSIT and Turquoise Plato platforms.

Liquidnet currently holds the highest block venue market share of 30.4%, again followed by ITG POST which has 26.8% market share and then Cboe LIS with 19.5%, the statistics also showed.

Following the introduction of MiFID II’s double volume caps (DVCs), which limits transactions that can be executed under waivers at 4% at a trading venue level and 8% for all EU trading venues, the number of orders executed above the LIS threshold has grown significantly.

LIS trading under MiFID II also benefits from waivers enabling participants to negotiate trades without pre-trade transparency. Ahead of the implementation of MiFID II, major European exchange operators such as Cboe Global Markets, the London Stock Exchange Group and Euronext, launched block trading platforms to meet the demand for LIS services.

Commenting on the new record, Rob Boardman, European CEO of ITG, said: “Last week’s global equity sell-off simply represents the latest in a long line of major geopolitical events to drive block trading volumes. The truth is that the electronic block market in equities has been growing for a while. This record simply represents a peak on a growing trend.

“From trade tariff disputes to rising interest rates, the drivers of these high volumes are wide ranging. With no shortage of opportunities in electronic block pools, it is key that asset managers continue to trade quickly, in size, without price impact.”

Periodic auctions have also emerged out of the regulation as a popular venue for traders looking to avoid the DVCs, with volumes surging across auction systems in Europe following the introduction of MiFID II.

Despite the share of trading on periodic auctions being relatively low, the European financial regulator is expected to announce plans to tighten rules amid concerns the venue is being used to circumvent certain requirements.

In particular, broker-preferencing and pre-matched activity have been of concern to market participants, including the buy-side, as it is difficult to distinguish between addressable and non-addressable liquidity on periodic auction venues.

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ITG will bring conditional orders to 12 markets throughout Asia-Pacific, meaning customers using Alert can choose to be alerted to block trading opportunities when matches are found.

The function is already available via ITG POSIT in Europe, the Middle East and Africa (EMEA) and the US. ITG added that it also plans to raise the minimum notional order threshold for POSIT Alert trades in Asia Pacific from $250,000 to $500,000.

“As institutional investors seek to unbundle execution from research and focus on improving trading performance, there is a greater emphasis on trading in larger size,” Michael Corcoran, CEO for ITG in Asia Pacific, commented.

“Our new conditional order functionality and higher minimum thresholds enable POSIT Alert users to access quality block liquidity across the region. POSIT Alert also gives traders the opportunity to minimise their market impact, delivering average price improvement of nine basis points and trade impact savings of 70 basis points.”

The conditional order functionality adds to the buy-side block liquidity that is currently available in POSIT Alert, ITG said. The indicated liquidity averaged up to $19 billion per day in the Asia Pacific region during the second quarter of 2018, with average daily turnover up over 70% throughout the course of this year. Average trade size in Asia Pacific via POST Alert have also increased 20% in the second quarter year-on-year to $1.2 million.

Earlier this month, ITG entered into a partnership with TradingScreen to combine its pre-trade analytics with TradingScreen’s order and execution management system (OEMS) workflow.

The combined service will bring ITG’s pre-trade analytics directly into TradingScreen’s OEMS workflow to help traders manage order flow, anticipate and mitigate risk, and estimate costs more accurately.

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