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Specially selected by Deutsche Börse, Prof. Dr. Peter Gomber, Chair of Business Administration (e-Finance) at the University of Frankfurt/M since 2004, and keynote speaker at TradeTech Deutschland 2011, gave us his insight on MiFID II, dark pool trading and the impact of technology on the future trading landscape.
Q: How do you see the role of dark liquidity pools changing in the German speaking markets?
Regulation will drive the role of dark pools for fund managers in the next ten years in Germany. I believe there is a need to generate a level playing field among the different forms of dark pools that we have. The regulated ones: the MTF and exchange dark pools and the unregulated ones, such as the broker crossing networks. How can dark trading be used in the future? I think dark trading should be an extension rather than the rule.
Q: Do you think part of this is due to the perception of dark liquidity?
The perception in the German market is not dramatically different from other European countries. Dark pool usage exists, maybe at lower levels than in the UK markets, but it provides a tool for buy side trading desks to execute their orders with the highest anonymity and the lowest market impact. For me the key question is “Is there a level playing field between the different forms of dark pools?”
Q: In on of your papers you have issued a call for “simple visible liquidity.” Do you think that the proposed regulation goes far enough to achieve this?
I think a drawback of the current approach by the EU commission is the generation of new types of venues. The risk is that regulation always tries to follow the reality of markets. The current idea is to create the new venue type: OTF (organised trading facility), depending on the concrete requirements I believe the industry will then either find a way around the new venue type or use it to their advantage to circumvent other heavier regulated trading venue types. We are in a cycle of new regulation, adaption by the industry and new regulation, again and again. We will end up with multiple trading venue types and I don’t think that is the right way to go. We need to look at what we have and then to correctly classify the existing venues into the existing categories instead of always generating new categories that try to follow what’s happening in the market. I think the current regulatory set up is sufficient but it needs a clear assignment of the existing venues into these existing categories.
Q: How will the recent mergers and proposed mergers, for example the one between Deutsche Börse and NYSE affect the trading landscape?
There is potential for the new entity to generate a pan-European cash market which is able to position itself against the new pan-European MTF.
Q: Is the “one size fits all” approach of MiFID II suitable for the fixed income and derivatives markets?
We need a very close look at the different asset classes. The “one size fits all” approach is not the ideal way to go. We should be very cautious of just saying “transparency is the solution.” Transparency is a good approach but need to be applied to each different asset class.
Q: Do you think that the relationships between asset managers and their brokers and vendors are different in the German speaking markets compared to the rest of Europe and the US?
Partly yes, because we in Germany have a close relationship between the fund managers, being subsidiaries of big banking institutions, and a lower relevance of fully independent fund managers. There is quite a close link between the fund managers in Germany and the banking institutions, which is different in some other European countries, definitely different to the US where we have a lot more fully independent fund management firms.
Q: How important are regional brokers to asset managers and hedge fund managers in Germany?
They are quite important because there are established relationships between the regional brokers and the fund managers. “Regional broker” does not mean that it is just a regional reach. A lot of regional brokers are able to access different markets worldwide, for example emerging markets.
High Frequency Trading and MiFID II will of course be the hottest topics on discussion at TradeTech Liquidity and TradeTech Nordic this November. For more details email tradetech@wbr.co.uk or call +44 207 368 9465.
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