Sixty percent of money managers' trading executives interviewed by TABB Group plan to use systematic internalizers registered with U.K. and European financial regulators for equity trades when MiFID II goes into effect Jan. 3.
Speaking with 20 European buy-side equity traders in July, 15% said they would leave the decision to use systematic internalizers to their current brokers, according to the TABB report, "MiFID II's SI regime: A New Liquidity Source in Europe's Equity Market."
Twenty percent said they were unsure whether they would use SIs, and 5% said they would wait until the second half of 2018 to gauge the execution quality of systematic internalizers.
Systematic internalizer is defined in Markets in Financial Instruments Directive II as an investment firm, such as a broker or an investment bank, that deals on its own accounts by executing client orders outside a regulated exchange or multilateral trading facility, like a dark pool. It is considered under MiFID II to be a counterparty and not a trading venue.
Among the heads of trading interviewed, 55% said systematic internalizers would help access liquidity or risk capital, 40% said they would help in choosing trading counterparties, 30% said they would bring price improvement, 10% said SIs would improve confidentiality in trades, and 5% said they would provide better post-trade transparency. Respondents were allowed to choose more than one answer.
Among the concerns of those interviewed, 59% said SIs would have unclear broker models and 20% said there would be greater market fragmentation.
Forty-five percent of those interviewed said they would reduce the number of brokers used once MiFID II goes into effect, while 30% said they would keep the same number of brokers and 25% said it was too soon to say whether they would reduce the number of brokers on their lists.