New market reforms in Europe are likely to boost demand for dark pool trades, which in turn may have a rippleeffect globally and change market behaviour in Hong Kong and the Asia region, according to independent dark pool operator Liquidnet.
The European Union’s new rule, known as Markets in Financial Instruments Directive II (MiFID II), is aimed at increasing transparency by requiring asset managers to pay for their investment research. Currently, banks and brokers have been offering such research as a “bundle” with other trading services.
The new rule, to be introduced in January 2018, means asset managers need to decide whether to absorb the cost of research themselves, or pass it on to clients, which in turn may cause them to review which brokers to engage with when sourcing liquidity and executing trades, market players said.
“This will reshape the entire landscape, whether you are in Europe or in Hong Kong. Some services will die and some will get better,” said Seth Merrin, CEO and founder of Liquidnet. “This means there is an opportunity to leverage technology to provide a service that asset managers need but are no longer getting.”
One third of respondents said they plan to adjust their broker list ahead of January 2018, according to a survey based on 55 interviews with Liquidnet’s member network of asset managers in North America and Europe. Seventy per cent said they are now reviewing new liquidity providers outside their traditional broker relationships. The survey was conducted between April and May.