The European Commission’s attempts to close a
loophole for systematic internalisers (SI) will not end the
uncertainty surrounding the nascent regime, according to market
participants. It’s also unlikely to dampen the
enthusiasm for new applicants, which include high-frequency
trading (HFT) firms.
An SI is a term originally used for equity products under
the Markets in Financial Instruments Directive (Mifid), but one
which has taken on new life as a result of its Mifid II
successor. Under Mifid II, the European Securities and Markets
Authority (Esma) aims to prevent banks matching client orders
while simultaneously trading with those orders. Institutions
wishing to continue matching flow must become a multilateral
trading facility (MTF) and they can only trade with it on risk
if they register as an SI.
Traditional exchanges have long-complained about the
negative impact SIs could have on their ability to match
trades. Trading with an SI involves...