SI Regime on Market Participants

One of the aims of MiFID II is to bring more transparency to the European financial markets in order to ensure market integrity and best execution, and enable investors to make more informed investment decisions. The regulation strives to achieve this through the implementation of new policies, with a large focus on ensuring previously opaque markets are made more transparent.
A core component of this is the extension of the Systematic Internaliser (SI) regime to non-equity, but how has this impacted market participants?
SIs are defined as firms which, on an organised, frequent, systematic and substantial basis, deal on their own account when executing client orders OTC.
Firms that opt in to being SIs or exceed the SI threshold (to be published by ESMA later on this year) for a given instrument will have an obligation to make a large amount of their pre-trade information available to the public. Thus, firms have a responsibility to assess the volume and frequency of their trading activiy in certain instruments, sub-asset classes or issuers, and subsequently put contingency plans in place in case they find themselves with a pre-trade reporting obligation.
In the latter end of 2017 we saw a large amount of tier 1 and 2 banks opting in to the SI regime across a range of asset classes, generally in a move to take the post-trade reporting requirement away from their buy-side clients. The considerable number of tier 1 and 2 firms opting in to the SI regime has resulted in a much larger scope than the market originally anticipated.
This leaves us wondering how many additional firms will become SIs when ESMA publishes the SI thresholds, and how high or low these will be. There is a risk that firms might get caught off guard by low thresholds, automatically capturing them in the SI regime. 
At TRADEcho we expect to see the interest in our pre-trade transparency service to continue to increase throughout 2018, especially given that the implementation of the SI thresholds is only one of several factors that will drive more SI pre-trade data.
With the late implementation of the double volume caps, we have already seen the negative impact on the amount of equity trading carried out on dark-pool trading venues. With firms now looking to pick up this liquidity, there is an opportunity for SIs to catch this flow. This opportunity is also catching the eyes of many market makers who are now considering becoming SIs, in a ‘if you can’t beat them, join them’ fashion.
Since MiFID II go-live, we have seen more and more interest in our SI quoting services, to help firms fulfil their new pre-trade obligations. TRADEcho benefits from 10 years of SI quoting practice in the MiFID I world and we apply this experience to our MiFID II solution to deliver the most complete SI quoting service in the market.
A vital piece of the SI quoting service that has attracted many clients is the ability to quote at multiple price levels on each side, with multiple quotes per price level. With this functionality, our multi-asset coverage and waiver applying rules engine, TRADEcho becomes the go-to provider of pre-trade transparency in the market.
Systematic Internaliser Timeline: 

The SI timeline is based on guidance from regulators


For further information, please contact:
Jonathan Briggs
Client Support Manager | TRADEcho