The conclusion of the paper, being that SDPs would continue to thrive, providing clients with access to liquidity, both on a bi-lateral basis, as well as providing some form of SEF/OTF liquidity aggregation, and smart order routing through to mandated execution venues, as required for cleared products.
In recent weeks, some concerns have been raised (misplaced in my opinion) that such SDP routing, could fall foul of recent proposals by MEP Markus Ferber, who has suggested that the EU amend Mifid to include a ban on ‘direct electronic access (DEA)’. His amendment states that:
“Investment Firms shall not provide direct electronic access to a trading venue”
The amendments are aimed at restricting direct market access to HFTs, and are designed to prevent bank’s from offering unfettered ‘naked’ direct Market Access (DMA) – Tabb Forum goes so far as to say it will end DMA ‘as we know it’, see here.
Personal View: This in my view is very different from, and should not be confused with a bank that provides clients with appropriate pre-trade credit approved access for submitting RFQs or streaming prices at approved venues for standardised OTC derivatives. Indeed, even Markus Ferber expects further modifications on this issue, in the course of Mifid negotiations.
In Dealer platforms weigh up life under Mifid published last week, Joe Renisson of Risk Magazine looks at Organised Trading Facilities (OTFs) and asks how Single Dealer Platforms can meet these regulatory challenges, and addresses many of the topics covered in Caplin’s White paper, plus a nice FAQ section all about OTFs at the end.
It’s a good article and worth a read if you can access it (I found it by copying the Risk title into Google and clicking the result here – works for me).
Indeed only recently, we looked at the question of ‘Does Mifid understand bilateral execution‘, and the increasing divergence between EU and US regulators.
So, here at Caplin, we stand by the conclusions of the White Paper, and continue to see a bright future for Single Dealer Platforms in an increasingly ‘confusing and evolving regulatory landscape‘.