Morgan Stanley, Credit Suisse Plan MiFID II Venues for BondsBy
Systematic internalizers let clients escape some MiFID duties
Banks take same decision as BofA, Goldman Sachs, JPMorgan
Morgan Stanley and Credit Suisse Group AG will become trading venues under MiFID II to make markets in bonds, equities, currencies and derivatives with their clients, two of the last major banks to reveal how they will trade under the European Union’s sweeping overhaul of financial regulation.
Morgan Stanley will become a systematic internalizer on Jan. 3, it said in a message Thursday to clients, while Credit Suisse announced its plans on its website the same day. Clients that trade with a systematic internalizer, or SI, avoid having to comply with MiFID II’s rules on trade reporting, including the requirement to submit reports within 15 minutes of the deal taking place for some securities.
Banks and proprietary traders acting as SIs have to trade using their own capital, and cannot match orders between clients. Traders of bonds and off-exchange derivatives in the EU have never had to file trade reports, so they may decide to do more business with SIs to escape the new regulatory burden.
Fund managers that use SIs also avoid having to submit personal-identity data, such as passport numbers, for their traders.
Equity traders, meanwhile, may do business with SIs to avoid the caps on dark trading that MiFID II introduces. European stocks that have had 8 percent or more of their volume traded on dark pools over the last 12 months will be banned from trading on dark venues for six months once MiFID takes effect.
Deutsche Bank AG and UBS Group AG revealed their intentions more than two months ago. Bloomberg LP, the parent of Bloomberg News, offers bond-trading systems, and services for transaction reporting and best execution to meet the new rules.
Below is a list of some of the companies that will become SIs and which securities they will trade using the new status:
- The algorithmic traders that will operate SIs to trade equities under MiFID II are Citadel Securities LLC, Tower Research Capital LLC, Sun Trading, XTX Markets Ltd., Virtu Financial Inc. and Jane Street Financial Ltd. Virtu and Jane will also trade ETFs via their SIs, while Citadel Securities will also trade fixed income.
- JPMorgan Chase & Co., Deutsche Bank, UBS, Goldman Sachs Group Inc., Barclays Plc, Bank of America Corp., Morgan Stanley and Credit Suisse have all confirmed plans to become SIs for equities, fixed income and derivatives. Most large banks are expected to use the SI umbrella for at least one asset class
- Nordea Bank AB and Mizuho International are among banks saying they plan to be SIs for fixed income; BNP Paribas SA for some non-equity instruments and ETFs; Bank of New York Mellon Corp. for currency derivatives
- Europe’s largest ETF trader, Flow Traders NV, has said it will not become an SI, as has fellow Amsterdam giant Optiver BV