the quest for best prices, liquidity & consolidated data - Neonet

FTSE GLOBAL MARKETS TRADING VENUES ROUNDTABLE: 

THE QUEST FOR BEST 

PRICES, LIQUIDITY & 

CONSOLIDATED DATA 

Attendees 

First row: left to right 

MARTIN EKERS – European head of trading at Northern Trust Global Investments 

PETER JOHANSSON – global head of equities at Neonet 

MICHAEL KROGMANN – executive director, Deutsche Börse 

Second row: left to right 

LARRY TABB – founder and chief executive officer of the TABB GROUP 

TIM WILDENBERG – head of direct execution, EMEA, at UBS 

TONY WHALLEY – investment director at Scottish Widows 

Supported by: 

74 J A N U A R Y / F E B R U A R Y 2 0 1 0 • F T S E G L O B A L M A R K E T S

MARKET STRUCTURES & THE SPEED 

OF CHANGE 

TONY WHALLEY – investment director, Scottish Widows: 

Most notable is the speed of change, both to market 

structures and liquidity, so much so that we need to adapt 

and modify our trading strategy on a far more regular basis 

than ever before. Post-Lehman Brothers’ collapse there’s 

been a significant impact on the liquidity that’s made 

available to us. Moreover, the rise of MTFs has had quite a 

dramatic influence on what we’re doing. The next trend is 

volume business transacted within dark pools. Whether 

that is to the good or bad, we are yet to find out. There are 

obvious benefits. Even so, it is imperative that we secure 

access to those dark pools in a way that is beneficial to us. 

Additionally, there are issues surrounding market 

transparency. As market fragmentation continues, there are 

concerns about the effect that has on the way the whole 

market is seen. A key requirement now, to mitigate some of 

the detrimental effects of market fragmentation, is to have 

consolidated market data; on both a pre- and post-trade 

basis. Without it our job is increasingly difficult. 

LARRY TABB – founder and ceo of Tabb Group: MiFID has 

changed the ground rules of how the European markets 

work. We are in a process of fragmentation and increased 

competition within the marketplace, which is changing how 

the buyside and the sellside interact. New liquidity providers 

are moving into the market, increasing liquidity within 

certain MTFs. Meanwhile, the buyside needs a wider range of 

tools to be able to trade against a fragmented infrastructure 

as well as protect trading flow from possibly predatory 

liquidity providers and high frequency traders. Moreover, US 

and European regulators are looking at the new players, 

technologies and market centres, trying to determine the 

right market structure and how we should be operating, and 

that will then change the landscape again. 

MICHAEL KROGMANN – executive director, Deutsche Börse: 

An important observation is that the algorithms 

implemented on our central platform worked well, even with 

a decrease in volumes and increasing volatility during the 

crisis. It is vital for us to confirm this fact. When the 

algorithms were first implemented (and we can actually track 

them back on our platform to 2002) we recognised that they 

provided significant liquidity to the market. However, that 

was in the good times, when volumes and turnover were on 

an upward trajectory. Over the last year, we saw that our 

major market participants and liquidity providers kept on 

providing liquidity and the market share of algo flow on the 

central platform remained constant. Elsewhere, customers 

who are very active today in the US markets have set up 

subsidiaries and entities within the European Union and 

have started trading and implementing their algorithms over 

here and now provide additional liquidity into the market. 

We think the game is now a European one. Moreover, crossborder 

trading, clearing and settlement continue to be very 

important. Finally, consolidation has to occur. We need it, 

because there are too many platforms out there. 

TONY WHALLEY – investment director, Scottish Widows 

PETER JOHANSSON – global head of equities, Neonet: From 

the brokerage viewpoint, the market provides ample 

opportunities. As fragmentation continues we interact in a 

different way with our clients and the dynamics of 

buyside/sellside client interaction nowadays focuses more on 

service solutions. Overall, the biggest change is the level of 

innovation and roll out of technology. However, the big 

challenge this year has been finding liquidity; and it has been 

hard, for both the buyside and sellside. I’m not as bearish 

perhaps on the fragmentation issue. Yes, consolidation is 

needed, but we need to find the right solutions to a market 

which in the near term looks to be continuing to fragment. 

MiFID has been good. It has brought competition, it has 

brought more liquidity into the marketplace. We could argue 

is it good liquidity for the buyside, for end clients? 

Nevertheless, it has encouraged technology innovation in 

terms of market interaction, which by the end of the day will 

affect transactions costs in a positive way. 

MARTIN EKERS – European head of trading, Northern Trust 

Global Investments: Just to get a bit controversial, I slightly 

disagree with Larry. I don’t think the buyside is going to have 

this huge IT challenge that you kind of imply and that’s really 

because, as Peter intimated, of the service solutions that are 

being provided by the brokerage side. I share his view about 

fragmentation too. Everyone says the US is always big: big 

numbers, big Macs, and there are so many different venues. 

Actually, there aren’t. Even at a recent presentation at the 

White House the claim that there were 42 separate trading 

venues in the US was knocked back to 32!. So, there’s a bit of 

puff here. It can be very scary when you’re faced with 

supposedly all these venues, supposedly new entrants and 

supposedly new liquidity. Really, how meaningful is that to 

the buyside? It’s probably noise to Tony [Whalley] and I. It’s 

the white noise that you want to somehow exploit and the 

sellside has been pretty good so far at clearing our TV screens 

for us. The two big issues that will help us significantly are 

market data and inter-operable clearing systems.You’ve got to 

have that open up and once that’s opened up, the issues aren’t 

as scary as they seem today. 

FTSE GLOBAL MARKETS TRADING VENUES ROUNDTABLE 

F T S E G L O B A L M A R K E T S • J A N U A R Y / F E B R U A R Y 2 0 1 0 

75


TIM WILDENBERG – head of 

direct execution, EMEA, UBS: 

I think there are three things: the 

first is competition, which seems 

to get harder every year. You 

think you’re getting better at 

what you do but, sadly, your 

competitor seems to be doing 

the same, which is always a 

slight frustration. The second is 

fragmentation; MiFID is a work 

in progress, if you like. Definitely 

some good things have come 

out of it. However, there has also 

been some unintended 

consequences that people may not have anticipated. Tony 

Whalley’s point about transparency and market data is 

pertinent in this regard. Third: the“dark pool”debate is raging 

in the regulatory world and it’s an important one.The thing we 

can ask from regulators is to help us get clean and accurate data. 

Also, we need to put this so-called problem in perspective, for 

the market and for regulators,as there is a danger that it is being 

inflated out of proportion. There are a number of post-MiFID 

issues and they all need to be addressed. While the dark pool 

issue is one of them, it is not the biggest. 

TRADING PLACES: THE NEW 

BUYSIDE/SELL SIDE RAPPORT 

TIM WILDENBERG: There’s an extra dimension now to 

stockbroking. In reality it’s become a kind of technology and 

service provision role that, 15 years ago, wasn’t the case.Then, 

it was about being able to find liquidity; advising clients with 

regard to the market; and making recommendations on stocks. 

There’s a wider range of things that brokers do nowadays, 

driven by an evolution of the stock market itself as it has 

moved from the floor to an electronic model. In consequence, 

brokers have had to compete more as technologists. The 

question now is: when does that stop? Actually, I’m not sure it 

stops any time soon. It will continue to get busier and tougher 

and harder. As long as there are competitors in the 

marketplace, there will always be somebody trying to invent a 

better mousetrap or a faster service. Competition drives that 

and will continue to, but we must face that it is a new 

dimension to brokerage that wasn’t there before. 

TONY WHALLEY: Brokers are constantly coming up and saying: 

“We’ve got a new this and that, which does this quicker than 

everyone else’s.” By the time we’ve tested it, checked 

connectivity issues and installed it, someone else comes along 

and says they’ve got something faster and better.From a buyside 

perspective, long-term relationships are paramount.You go with 

people you know can deliver.Brokers are now putting in front of 

us a lot more products that we can use, and it is down to us to 

choose which products we think are most suitable. There is a 

fairly substantial technology cost to the buyside of all this, as we 

have to test them and ensure they are compatible with our 

legacy systems and that can be time and cost consuming.Those 

LARRY TABB – founder and chief executive officer,TABB GROUP 

brokers that are able to innovate 

and connect will over the longterm 

do better. The buyside 

meanwhile is asking, on a 

monthly/quarterly basis, for 

destination reports, to check that 

making good use of all the 

different forms of liquidity out 

there. However, as Martin will 

testify, 20 years ago if we were 

looking for, let’s say, 50m Tescos, 

you’d ring up a trusted broker 

and you’d tell him:“I’m looking 

for 50m Tescos. Don’t take them, 

but if you see anything, make 

sure we don’t get overlooked.”The broker would sit there and 

say nothing. Two, even four days later someone in the trading 

room shouts:“I’m a seller of 20m Tescos!”The broker says,“I’ll 

buy those, thank you very much”. That was your original dark 

pool. Now that happens electronically. 

PETER JOHANSSON: Tony, do you feel more secure about 

the old dark pool or the new dark pool? What’s the overall 

buyside feeling? 

TONY WHALLEY: The buyside has become immensely more 

professional and more diligent than it was 20 years ago and 

cognisant of what is going on in the market in terms of 

structure, pricing, volumes.Today’s good buyside trader is much 

better equipped than the buyside trader of 20/30 years ago. 

PETER JOHANSSON: I do believe we’ve seen that 

transformation on the sellside too, i.e. in the way in which our 

traders interact with clients and their overall approach to 

trading. Now we’re just moving into hybrid areas, in between, 

low touch and high touch service. I believe you have to utilise 

all of the technology and innovation and market access 

together with the old school personal approach to trading, 

because it is still a relationship business. 

TONY WHALLEY: Yes. It’s about prioritising your order 

flow, isn’t it? As you say, high touch, low touch. You now 

have systems whereby any order which is worth less than, 

let’s say, £5,000 is automatically routed somewhere and 

executed and comes back and you don’t even need to see 

it. It is not only low touch, it’s no touch. 

LARRY TABB: It isn’t that the buy side’s going to develop 

an entire suite of algos and build their infrastructures. 

However, they will need more order management 

technology. Eventually, you will wind up with a whole suite 

of really good algorithms provided by brokers. To some 

degree, we’re seeing this in the States, where even those 

buyside firms that you would think wouldn’t have 

independent execution management tools are 

implementing them to take a little bit more control of the 

execution process, and not necessarily putting everything 

through a broker — whether to hide strategy or take more 

control of it. Now, you’re not going to be building those 

platforms from the ground up, instead implementing 

vendor-based platforms and some canned outsidealgorithms, 

but it’s more than you had in the past. 


CROSSING & DARK LIQUIDITY 

TIM WILDENBERG: No question, MiFID has enabled new 

trading venues. Now we have the arrival of dark MTFs, which 

are publicly accessible non-displayed pools. We’ve always had 

crossing services that brokers were operating solely because 

we were trading for our clients. We know that we’ve got a 

buyer of Alcatel and we’ve got a seller of Alcatel, so we’re going 

to try, if it makes sense from a best execution standpoint, to 

cross them. That is exactly what we’ve always done as 

stockbrokers. We are obliged to look after our clients’interests. 

To whom we might – or might not — show bits of their order 

rests on our understanding of our clients’requirements. 

One thing that brokers, with hindsight, have perhaps 

done badly is that we’ve allowed the perception to develop 

over time that crossing services offered by brokers are the 

equivalent of dark pools that are public MTFs. Actually, 

they are quite different. It goes to the point mentioned 

earlier: about the importance of knowing whom you trust. 

MICHAEL KROGMANN: Being progressive and 

considering that there is crossing and liquidity, it is vital in 

an efficient market that we strengthen the elements of 

transparency and price formation. Nevertheless, big 

investment firms must be able to cross large-in-scale orders 

on the basis of public information and price. We should 

consider in order to account for economic necessities and 

existing trading practices, MiFID originally allowed few 

exemptions from the strict transparency regime. Again: the 

basis for the waivers was to avoid“excessive transparency” 

for large-in-scale orders, and this is the very area waivers 

should be restricted to, besides the other waivers that are 

already in place. If they are, they might indeed support a 

transparent and efficient market structure. 

LARRY TABB: The problem is, when you’re looking at blocks 

that are large in scale, a lot of the blocks that wind up getting 

executed in the broker dark pools look a lot like small little 

pieces. The issue then becomes that sometimes there is only 

one side of the order that’s block and what winds up crossing 

against it is lots of small orders or an algorithm, and if you 

start banning dark pools or putting too many restrictions on 

dark pools, investment managers aren’t going to put a million 

shares into a pool. They’re just going to leave it on their desk 

or put it into an algorithm or give it to a broker over a period 

of time.You wind up moving that liquidity out of the market 

completely and it makes it just more difficult for the buy side. 

TIM WILDENBERG: There needs to be more granularity and 

transparency. To Larry’s point: in reality the crossing 

executions that are happening are not always traditional 

“blocks.” There are many reasons for that. The nature of the 

instructions we get from a client varies. He may want to 

trade discretely throughout the day, so executions are done 

in micro-portions. We need to be transparent about where 

we’re printing those executions. Do we print them today 

instantly? Yes, and we print them at the midpoint. While 

improved transparency has a positive impact, there also 

need to be protections in place when crossing with nondisplayed 

flow to ensure that people are not trading outside 

of the spread or at bad prices. One of the points that Tony 

raised about seeing more free trade could actually be a 

problem. The trader is our client, but some fund managers 

are looking at their dealing desk, saying:“Well, I know that 

the crossing pools might be trading at a different price, but 

I’m measuring you on the primary.” Therefore, though an 

algorithm can manage multiple curves across multiple 

markets in order to achieve price improvement, brokers may 

be compelled to “dumb them down”, providing our clients 

with a benchmark primary because that’s what they 

themselves are being benchmarked against.This tells us that 

if there was actually one consolidated tape, they wouldn’t be 

having that conversation because everyone would be 

looking in the right place for the market data. 

TONY WHALLEY: The big worry with dark pools is if, for 

example, and I’m using Tesco again, I’m looking to buy 5m 

Tesco through UBS’s dark pool and Martin is looking to sell 

5m Tesco through Merrill Lynch’s dark pool, they’ll sit there 

all day and nothing happens. 

TIM WILDENBERG: That would have also happened 

before in your old floor based system. You would have 

talked to only one broker. 

TONY WHALLEY: Yes, but wouldn’t it be so much better 

and so much more advantageous to our side of the fence 

not necessarily your side of the fence because there’s a 

vested interest here if dark pools were consolidated and 

everything came together? 

TIM WILDENBERG: Then they would all be public open 

pools. In the same way you’ve talked us through your Tesco 

example, there are going to be certain times where you’re 

not going to want anybody else to know about your order. 

So, the problem is that this is a bit like the indications of 

interest (IOI) debate. 

TONY WHALLEY: Absolutely. It’s protectionism. 

MARTIN EKERS: Do buyside desks prefer the old dark 

pools or the new dark pools? My reply to that is that you 

can walk into a very nasty pool in both the old or the new 

style pools or, equally, you can decide to swim very badly 

with your eyes shut. Either way, you will end up damaged. 

Dark pools have always been there and our biggest risk as 

an industry is that the regulators don’t understand that dark 

pools have always been there. This isn’t some nasty new 

plague that’s suddenly coming across the industry for which 

they prescribe some prohibitive regulation. They often use a 

sledgehammer to crack a nut, and it’s a hell of a way back 

once they’ve done that. It is our duty as industry 

professionals to ask everyone else who’s involved to guide 

regulators towards a sensible solution. As we’ve discussed, 

technology has only enhanced what was already there. 

TIM WILDENBERG: In non-displayed liquidity, everyone 

wants to see your IOIs, and not show their own. The 

problem rests in certain types of orders. When you give us 

an order, we will put it in some of the public dark pools. We 

will also allow some of our other clients’ orders to match 

against it because we know it’s usually good for them and 

you. The problem with a dark pool is implicit. If it’s a public 

dark pool, then in reality it’s not that dark, because you just 


77


don’t know who’s going into it 

or what they are doing with 

the information they are 

getting from their interactions. 

You don’t know that Martin 

Ekers has been sitting there 

thinking: “There’s a buyer on 

Tesco, I’ll just wait.” What’s the 

fine line between someone 

being a great trader and 

someone gaming a dark pool? 

It’s a very subtle difference. 

MARTIN EKERS: I was reading 

this morning about a major US 

company that’s launching in 

London very soon and their 

average trade size in the States 

is 415 shares. I’m not sure that 

that’s of any benefit to my order 

book or Tony’s order book and 

yet this is a major headline and 

there’s a big fanfare. 

TIM WILDENBERG: To be fair, 

though, there is an intellectual 

debate that says if new people 

come to the market with 

volume each day, but leave the 

market at the end of every night 

flat, have they brought liquidity 

or have they not? In aggregate, 

you’re right, 415 shares isn’t 

going to make a difference. 

However, if every time you trade 

you manage to trade that 415 

shares with half a basis point 

price improvement, that over 

time is going to make a pretty 

major difference to you. If, as 

you say, all this frequency trader 

does is take money out of the business, then that will stimulate 

a debate around: have you brought a new buyer to the market? 

I don’t know the answer, but I can see that there actually is 

more turnover, there is some more liquidity been brought into 

play. Is liquidity all about institutional long only clients buying 

stocks, keeping them and selling them to another long only 

guy? I don’t know, but the accumulation of good 415 share 

executions adds up. 

LARRY TABB: In the US,TABB Group counts all the dark pools 

through our LiquidityMatrix. We gather the information that 

providers give us and if you look at the dark pools that have 

large-in-size trades — such as Liquidnet — the amount of their 

liquidity is much more limited than if you look at the ones that 

are trading 100, 200 and 400 shares. Therefore, if you’ve got 

your 5m Tescos, you’re going to put that in a Liquidnet. If 

somebody else is in Liquidnet and you can match that off,that’s 

great, no leakage. The question then becomes, if everybody’s 

buying Tesco, who is going to take the other side? That’s when 

PETER JOHANSSON – global head of equities , Neonet 

MARTIN EKERS – European head of trading, Northern 

Trust Global Investments 

you start getting into the broker 

dark pools that bring in different 

types of liquidity. I’ve been on 

desks where they’re starting to 

get fills and, yes, they’re getting 

100 and 200 share fills but 

they’re getting a huge number of 

them, really filling quickly. The 

question then is: is that, for 

example, Martin or is that Tony 

on the other side with an 

algorithm feeding into the other 

side of that? Or is it Mr. Get Go 

taking the other side and laying 

it off heaven knows where? 

Unfortunately, it’s hard to tell. If 

you look at the numbers of 

Credit Suisse, Sigma-X or UBS, 

even though they don’t tell us 

their numbers, they’re actually 

doing far more volume than the 

big block dark pools. 

TIM WILDENBERG: Ultimately, 

dark liquidity is one part of a 

larger function. It’s a tool. There 

are times where you need a 

visible and public market, and 

often most of the time, you need 

to advertise you’re a buyer or 

you’re a seller. You want to be 

sitting on the best bid and you 

want to be visible, because you 

need to find the other side of the 

order. There are many times, 

however, where you don’t want 

this visibility. There is also 

sometimes an unhealthy blur 

between what is over the 

counter (OTC), or off exchange, 

and what is dark.There is a misplaced perception that all OTC 

is dark or non displayed liquidity, which is not the case. The 

percentage of orders that are truly dark is probably 5% in 

Europe, compared to the 40% that is OTC. As an industry we 

need to be more transparent around that OTC number,because 

an OTC trade report might for example just be relating to some 

swap or give-up going on behind the scenes, or a risk trade, or 

all sorts of other things that (chances are) have actually been 

through the public lit market first, anyway. 

MICHAEL KROGMANN: If you want to get fills in small 

sizes, you can just send a certain proportion of your big 

order to the order book and get executed against 260 

market participants to execute against you fully and 

anonymously. If it comes to execution of small proportions 

of a big order, it should be distributed in the price discovery 

process that is publicly available. We have a big conflict 

here, because no individual is interested in sending his 

order to the public order book. However, everybody is 


interested, of course, in high quality price discovery that he 

can read as an indication for all kinds of executions. 

LARRY TABB: In the US, the public markets have been very 

open to the high frequency set and to a lesser extent, the 

dark books, or at least certain dark books. When we talk 

with institutional traders, there’s a much greater desire to 

keep things, even if they’re getting 100 to 200 share fills and 

they’re dark. That’s because they feel that when they get to 

the lit markets they’re absolutely playing with the Mr 

GetGos. Sometimes, when you need to get filled, you need 

that, but they want a little bit more shelter. 

PETER JOHANSSON: There will always be different types 

of vendors, there will always be different types of brokers. 

There will always be different types of algos, dark pools, 

marketplaces. I just think that we need to take one step 

back and understand, specifically from the buy side’s 

perspective: what is the investment decision behind this 

trade? Where shall I go? Who shall I interact with? You 

should keep close interaction and notes and make sure that 

you get all of the information you require. Where did I 

trade it? How did I trade it? Where was the EBBO? It is 

also vital to measure your execution quality, because there’s 

always going to be different venues to choose from. 

BUYSIDE APPROACHES TO TRADING 

TONY WHALLEY: Our fund managers are supposed to be 

taking a three-year view.The high frequency traders are taking 

a three nanosecond view. Now, as far as I’m concerned, there 

has always been a fear in the market as to who you’re trading 

against. It used to be: am I trading against natural on the 

other side or am I trading against the market maker? Then it 

became: am I trading against a hedge fund? Now it’s become: 

am I trading against a high frequency trader? Well, actually, 

provided I’m fulfilling my objective, which is buying or selling 

the shares that the fund manager wants to buy and sell on a 

three, four, five-year view, I’m doing my job. In any case, this 

fear about who we’re trading against actually shouldn’t 

matter. These guys are providing liquidity and our job, as 

much as anything else, is to find that liquidity. 

MARTIN EKERS: I’m glad Peter has posed the questions, it’s 

better coming from the sell side. At what point does the 

buyside and the whole variety of buyside desks that there are 

become accountable? I fully acknowledge that you and Tim 

and all the other brokers have got orders but I do not know 

any other transaction that you would make that you’d be 

prepared to complete based on a future price. For example, 

Larry, have you flown over here only to find out how much 

your flight will cost you when you get home? Of course you 

haven’t. None of us would do that and the justifications given 

for those sorts of instructions concern me. We’ve got a huge 

core business and if the benchmark is the closing auction, I 

fully understand why we’re going into the close, even though 

we could have traded at four o’clock. We’re going to trade at 

the auction at 4:35 and that is absolutely crystal clear and fully 

defendable. For example, if my equity manager has made a 

decision to buy 50m Tescos based on the price at 25 past one, 

then it’s my job to get that done as quickly as possible with as 

little impact as possible with whoever else is out there. 

PETER JOHANSSON: The buyside trading desk is now also 

asking for help with alpha from the sellside. Therefore, I do 

believe there’s an interaction between them, however, with 

the options available today, you should feel fully secure that 

giving out the trades that Martin is talking about, that you 

are sure about the added value in just giving out straight 

benchmark. I cannot agree more with you. 

MICHAEL KROGMANN: There has always been a demand 

for crossing of big orders outside the order book, as we’ve 

discussed. Xetra MidPoint allows trading members to trade 

stocks without disclosing the volume and the limit of their 

order. The functionality thereby enables market 

participants to execute market neutral orders of greater 

volume. The orders are entered into a closed order book 

and executed at midpoint between the best bid and ask 

price of the open Xetra order book. Therefore the Xetra 

MidPoint, is not a dark pool, it is a reference pricematching. 

However due to the execution at midpoint 

between the best bid and ask price, implicit transaction 

costs for investors are reduced. Xetra MidPoint thereby not 

only ensures full transparency concerning price 

determination but also enables trading members to 

minimise their trading costs. 

Additionally, as Larry mentioned before, all the public dark 

pools are not as successful as the broker-owned dark pools.As 

far as I know, there has not been a single public or exchangeowned 

dark pool in Europe that has been successful. 

GROWING TRANSPARENCY 

LARRY TABB: What Tony and Martin were saying earlier 

about pre-and post-trade market transparency, that tends 

to be the biggest challenge we hear from European buyside 

traders; that it’s very difficult to get a complete view of 

what’s happening in the market. Hand in hand with that is 

clearing and settlement. Pre- and post-trade transparency 

will be a challenge but it’s more easily solved than the posttrade 

clearing issue with five or six CCPs and a significant 

number of depositories to take into account. 

MARTIN EKERS: Condition codes are fairly boring, yet 

crucial. There is a whole swathe of data out there that we’re 

all trying to decipher and if we can get a very clear common 

set of condition codes across Europe, then it just becomes so 

much easier for everyone. Any agency transaction, any OTC 

cross should be printed, reported and published immediately 

and marked as such. For example, if I decide to buy 5mTescos 

from Tim on writ, that should not print. That should be 

privileged information for Tim and me to know. When he 

unwinds it in the marketplace or from the high frequency 

trade or from Tony, then that should print, and I don’t think 

there’d be anyone on the sellside or the buyside who would 

argue against a very commonsense solution. 

PETER JOHANSSON: We spoke about the old days 

previously. Wasn’t there some kind of gentleman’s agreement 

in between buyside and sellside of unwinding the position? 


79


TIM WILDENBERG: MiFID has 

actually, though many don’t 

wish to admit it, made the world 

more transparent. However, if 

you were a London stock 

market operator, either on the 

buyside or the sellside, the new, 

more transparent rules of MiFID 

are actually a step backwards 

from what was visible in 

London before. In aggregate 

there is more visibility, there is 

more trade reporting and there’s 

more detail because actually 

anything that traded in 

Germany could have been 

traded OTC almost anywhere on the planet and was just 

getting booked and not shown. Now we’re in a scenario where 

all of these OTC executions are actually visible. People don’t yet 

have the tools, although they’re starting to build them and 

understand how to drive them, to do that. However, to 

Martin’s point, there is a debate in the market about the value 

of MiFID. Some of Michael’s colleagues, I’m sure, in the legacy 

exchange world are facing intense competition and may find 

some of the developments in the OTC space rather 

threatening. In reality, though, at a granular level, we discover 

that the dark liquidity that everybody’s so very worried about is 

only 5% or 6% of all the aggregate, tradable volume. What is 

displayed remains a massive proportion. For example, if you 

look on the Fidessa website today, they’ve got a thing called 

“The Fragulator,”where you can see how much is trading dark, 

how much is lit, and on which venues. There is a big chunk 

that is OTC and that needs to be flagged in a way that explains 

that this is a client to client cross, this is a client to book cross 

or whatever. 

MICHAEL KROGMANN: If I look at the whole proportion of 

OTC trading, in some months it is near 45%. Even so, there 

is no formal and publicly available information that says how 

much is going on in broker internal dark pools. Therefore, all 

the figures, even the figures that Larry is providing, are just a 

good guess about what’s going on in these dark pools. So, 

we need some more transparency there. 

TONY WHALLEY: On a European basis we are far more 

transparent than we were pre-MiFID and the issue that we 

have is very much one that we have on all European 

legislation, not just in the financial sector, where you’re trying 

to get lots of different shaped things all to fit in the same hole 

and, actually, it doesn’t always work for me. Ironically, the 

transparency we enjoyed in the UK market pre-MiFID was 

actually far greater than the level of transparency we now have. 

People are pushing back to a certain extent and slightly 

concerned that what they used to be able to see and what used 

to enable them to do their job is now no longer available and 

that is a big concern. I also think that if you look at what is 

going to happen in MiFID Stage 2, if such a thing does go 

ahead, which I believe it will, then you’re going to find that 

unless the transparency/consolidated tape argument is 

mandated by the regulators, it 

simply will not happen. That is 

because there is a certain 

amount of vested interest in the 

mix, where transparency is not a 

big thing. You ask anyone and 

they will say:“I want everyone’s 

business to be 100% transparent 

except mine.” However, it 

doesn’t work that way. Even so, 

if you have a greater degree of 

transparency in markets, it 

encourages liquidity, which is 

what we all want. 

LARRY TABB: I had a 

discussion recently here in 

London with a market operator who was also very sceptical 

of getting complete pre-and post-trade transparency. He felt 

that if there was complete pre-and post-trade transparency, a 

lot of the liquidity from Europe would wind up in London, 

mostly because more of the trading venues are there and that 

it would disadvantage a lot of the smaller countries trying to 

build up their own bourses. Now, that might not necessarily 

affect Xetra because that’s a big market centre, but it might 

affect some of the smaller countries, and they would never go 

for it. That’s only one market operator’s viewpoint but... 

TIM WILDENBERG: We’ve seen recently in the US the SEC 

discussing the“Fair Access”point, saying basically that they’re 

considering changing the threshold at which the dark pools 

that publish IOIs will need to display prices more visibly. 

Moreover, the SEC is also talking about a tape where people 

would have to immediately declare where a non-displayed 

trade happens. So, rather than just take an execution report 

that says IBM just traded at ten, it will say IBM traded at ten 

in Sigma-X or in UBS PIN or New York Stock Exchange or 

Xetra, for instance. In Europe if we cross something today, for 

instance, we put it in BOAT in real time, so it is already being 

published in real time and we are happy to do it. The 

interesting feedback I’m getting from my US colleagues is that 

the US client base does not want that level of granularity to go 

on a public tape, as the SEC are proposing. That is, 

information that shows a block go through and who traded it. 

TONY WHALLEY: You’ve got to give it a bit of time where 

people actually see the benefit of having full transparency.As 

long as the client name isn’t shown, I don’t have a problem. 

In the old days in the market where a broker just crossed up 

stock, if you had business to do in that stock, you gave that 

particular broker a call, knowing where the business was 

going on, meaning that they get more business and we end 

up getting our business executed with less market impact. 

TIM WILDENBERG: Except there is a general trend 

throughout Europe and around the world to “anonymise” 

the public markets (i.e. hide the broker codes) , because the 

information leakage is viewed as detrimental to the players 

in the market. 

PETER JOHANSSON: I’ve been involved in those discussions 

regarding anonymity on the exchanges. There has been, and 

MICHAEL KROGMANN – executive director, Deutsche Börse 


I do believe there still is, a strong resistance among 

Scandinavians, both buyside and sellside, to go completely 

anonymous on the post-trade scenario. So, how does that 

affect the market? I’m a strong believer that we should 

become totally anonymous because I’ve seen some patterns 

within the markets where orders get shuffled around and you 

have some front-running. I’m not saying that I could point it 

out precisely, but you can have a good guess at it. The 

execution performance in anonymous markets versus nonanonymous 

markets tells us that all markets should embrace 

total anonymity. However, the debate is still raging. 

MICHAEL KROGMANN: The market needs to be fully 

anonymous because otherwise all the market participants 

might have a problem with the counterparty risk when 

they see small broker names in the book. All trades should 

be fully anonymous and fully secured by CCP afterwards. 

TIM WILDENBERG: Well, that’s contrary to what is being 

asked for in the dark pool debate by the SEC. In that debate 

we are being asked to print in real time and put our name 

on it. So, to some extent there’s a conflict. Maybe a solution 

is we publish it in real time and later on we tell you this was 

our total number and we mark it in someway or 

something. I absolutely agree with you. Transparency, in 

my view, takes the debate away because the dark pool 

debate, in my view, has become too big unnecessarily. 

MICHAEL KROGMANN: However, your internal dark pool 

is obviously not a public marketplace and not everybody 

can have access. On an exchange, actually, everybody can 

have access. That is for me a totally different discussion. 

TIM WILDENBERG: Nevertheless, the risks around 

anonymity remain. 

MARTIN EKERS: There was question a little while ago 

about whether we feel there’s a reluctance to publicise the 

venue, where the things trade. If there is, its very 

misguided. I would fully, fully support it and I don’t really 

get Michael’s difference here because we’re in a public 

market and a Sigma-X or UBS PIN. If the trade’s going on 

in the public market, then all market participants are going 

to get there. They’re going to know very quickly. If all the 

volume of Siemens is on Xetra, they’re going to trade it on 

Xetra, there’s no doubt about that. If Tim is putting up 

crosses after crosses after crosses and you can see it going 

though real time on the tape and it’s all got his little flag on 

it, then it’s quite right that I get hold of Tim and he rings up 

Tony and he does a huge great cross and we’re both happy. 

MICHAEL KROGMANN: I’m not. 

MARTIN EKERS: That’s competition, right? One of the 

biggest threats to us as an industry is lack of trust in the price 

formation process, lack of reliability about the tape, which is 

why it’s so important to consolidate it, misunderstanding 

about what is real volume and what isn’t real volume and 

how much is going on where and what and it’s within our 

grasp as practitioners to help solve that problem. We should 

be publishing. You’ll all have your different ways of 

advertising it. People will have it on the tape Neonet just 

crossed this and I’ve got an interest in the name and I’m 

going to be calling you up. That’s the way it should be. 

LARRY TABB: Some of the debate in the United States is 

not necessarily about larger mid-cap and large cap names 

but some of the smaller cap names. These smaller cap 

names are easier to game and traders are worried that realtime 

printing of smaller cap names, especially in the dark, 

may help facilitate the gaming of these names. Now, I don’t 

know whether that’s right or not. 

MARTIN EKERS: Because it’s a trade and it’s complete, the 

gaming risk, and this is to Larry’s point, really, about the 

small cap, is no greater or less than any other scenario. It’s 

no different in 25,000 little shares with a small company 

and a 50m Tesco. The chance of that being gained after the 

trade has hit the tape is exactly the same. 

LARRY TABB: That’s the issue: when you wind up with one 

after another print of 200 share prints in a dark pool of a 

smaller cap stock that trades over a period of time. It’s not 

when you’re done all at once. 

TONY WHALLEY: There’s no doubt at all that the fund 

management industry is becoming more and more global 

and will continue to do so. However, I do think, like all 

things, it is very, very important that we get what’s going on 

our own doorstep correct before we start trying to branch 

out. If we try and branch out before we’ve got the stuff close 

to home working properly, all that’s going to happen is that 

a lot of the problems we have close to home we will export 

to the other markets and make them worse than they are 

right now. So, we’ve got to be very, very careful about that. 

The trend itself is to move to a global basis in terms of fund 

management, in terms of analysis and probably in terms of 

trading from a fund management perspective as well. You 

see more and more desks starting to split their order flow, 

not so much on a geographical basis but on a sectoral basis 

and that is probably going to continue as time goes on. 

However, please, please can we concentrate on getting 

what’s at home right before we try and move overseas? 

LARRY TABB: Also, the issue is that Europe through the EU 

process and Brussels is coming together while at the same 

time Asia is really fragmented and not coming together. 

You have the Asian markets with some linkages but those 

markets are really very different. 

THE VERDICT ON MiFID 

MARTIN EKERS: I’d give MiFID six or seven out of ten. It 

hasn’t quite achieved what they wanted it to but it has 

been a wake-up call for the industry. The first words in 

this roundtable were about change being continuous and 

ongoing. That sounds good and that continues to be the 

case. I don’t think you ever get to a point in this industry 

where everything is sorted and we stop developing or 

stop innovating and changing. I’m reasonably optimistic 

that the market fragmentation will, in the short term, 

worsen but in the medium term improve. I share Tony’s 

reflection that the quality of buyside has improved and 

continues to do so. 

FRANCESCA CARNEVALE: Do you think the buyside of the 

sellside has benefited most from a post-MiFID world? 


81


TIM WILDENBERG: At first 

glance, the perception will be 

that the sell side has benefited 

more, especially if your business 

is selling technology that 

aggregates fragmented markets. 

However when somebody does 

some qualitative work around 

the liquidity of the market, I 

believe we’ll actually discover 

that the buyside and some of 

their clients have also benefited. 

I’m not sure that’s clear yet 

because there is scant research 

in the marketplace that 

demonstrates how spreads are 

tighter, liquidity has become easier, and the cost of trading has 

dramatically changed. I think trading costs have come down; 

but we need empirical proof. 

MARTIN EKERS: Just a PS on that. The problem, as we 

already mentioned, is about the quality of the data but also 

you have to accept from any position that 2008 was an 

extraordinary year and you’ve almost got to lift it out of the 

equation. You’ve got to go back to 2007 and you’ve got to 

compare 2009 and 2007 and just say, right, 2008 was a real 

aberration, an outlier that’s going to make a mess of any stats. 

TIM WILDENBERG: Have you thought of doing some of 

that work, Larry? 

LARRY TABB: Yes, we’re actually in the process of looking 

at the last four years, the two pre-MiFID and two years 

post-MiFID, analysing effective spreads not across the 

whole market but a tier of, say, 30 stocks. That includes top 

tier as well as mid tier and small tier, across the FTSE, the 

CAC and the DAX. 

MICHAEL KROGMANN: Of course, there have been a lot of 

changes in the last two years but at Deutsche Börse and 

Xetra we were always in the position where we had to 

compete with the markets. Compared to other European 

markets we did not have a concentration rule in Germany, 

so it was always possible for retail as well as institutional 

investors to trade OTC off the markets. Then we have the 

peculiarity in Germany that we still have seven regional 

exchanges that are, of course, not a competitor on an 

institutional scale, but which are certainly competitive on 

the retail scale and we have had to innovate all the time. We 

have implemented around two releases of Xetra every year 

even before the implementation of MiFID. So, we have 

listened to the market, have been innovative and so on, but, 

of course, the dynamics increased as regulatory changes 

have been implemented but at the same time technology 

implementation on the customer side also increased, so we 

have really had to adapt our business model to new market 

conditions.That is why we are launching Xetra International 

Market, a dedicated segment for trading of European Blue 

Chip equities with an efficient home market settlement 

process. In terms of a market share comparison of what was 

traded in German instruments and in the transparent order 

TIM WILDENBERG – head of direct execution, EMEA, UBS 

books, it looks like we don’t 

have the same proportion that 

we had probably two years 

ago, but I’m not so sure 

whether that would have been 

routed to our platform even 

before MiFID. 

PETER JOHANSSON: There’s 

been great opportunities and 

there’s been some great issues 

as well. We’ve seen 

fragmentation. It is here to 

stay. One could debate 

whether it will continue. There 

will be consolidation on the 

trading venue side, but also in 

the asset management space. You might see it also on the 

brokerage side. We might see some more consolidation on 

the sellside because, with this fragmentation, there’s a lot of 

brokers out there that do not have the capability or the 

infrastructure or the money to actually invest in what’s 

needed to actually reach all the different liquidity pools. 

Moreover, on the other side of consolidation, which we 

haven’t spoken about, I’m actually in a market where 

suddenly exchanges are starting to compete with me on 

out-routing, forward-routing. I’m just starting to see the 

whole map, defining a new but still exciting market. The 

buyside has benefited from MiFID in the changing way that 

it now needs to utilise the sellside more as a consultancy for 

solutions, and to actually reach the market in a more 

technological way. The old relationship will still stand 

however, and I do believe that’s one of the core things 

within our business. Going forward there’s still 

opportunities out there and we just have to embrace them 

and finally, liquidity will continue to move into market. 

TONY WHALLEY: I wouldn’t say it’s much improved, I 

would say it’s different. MiFID was there primarily as a driver 

for change and to ask questions and there is no doubt 

whatsoever we have seen some change and there’s still a 

certain amount of change to come and it will possibly be in 

areas where we don’t expect to see that change. The 

discussions we’ve had over the previous hour and a half 

show that there’s still some questions which definitely need 

to be answered. So, from that point of view MiFID has done 

a very good job. In terms of exchanges, in terms of ECNs, in 

terms of MTFs, the question is whether we’ve actually 

reached the stage where fragmentation is going to continue 

or start to consolidate. If we look at the example of the LSE 

with Baikal, and potential take-over of Turquoise, we’re 

starting to see the consolidation starting to take place. What 

the marketplace will look like longer term, I’m not sure, but 

I do believe that it’s given us and it’s also given the sellside a 

huge amount more choice as to how we execute that 

business and choice is good. Choice in itself allows you to 

use a little bit more discretion, to add a little value to the way 

trades are executed and that in itself has led to a higher 

quality of people on both sides of the fence.

the quest for best prices, liquidity & consolidated data - Neonet

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