With the European Parliament's formal adoption of MiFID II in yesterday's plenary session, the next fundamental industry overhaul is on the horizon. Away from all the noise around HFT, I've been looking at the new trading obligation for investment firms that requires them to undertake all trades in shares on a regulated market or MTF, or as a systematic internaliser (SI). Any firm dealing on its own account to execute client orders will be required to register and trade as an SI, subject to certain threshold criteria yet to be defined by ESMA, and brokers crossing client orders will be obliged to trade on-venue, rather than report those trades as OTC.
Depending on where this OTC volume shifts to, the new dark volume caps could be triggered under MiFID II. With their pre-trade transparency rules SIs are out of scope for these caps, so while they were largely ignored last time around they may now become a safer harbour for the broker community. That said, SIs are not a catch-all and firms' business models will need to be aligned to meet the challenges of the new market structure under MiFID II.