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Talking Intelligent Trading with Andrew Delaney: The Emergence of the MiFID II Ecosystem

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It’s back to school week and so we found ourselves back in town, hearing all about Colt’s new MiFID II Ecosystem, based around access points offered by its Colt PrizmNet financial extranet.

The premise is relatively simple: why not use PrizmNet as the conduit to a range of MiFID II-relevant partner applications? At a function at the Royal Exchange in the City this week, Colt hosted a bash with three partners – Aquis Exchange, TRADEcho and SQS/TraderServe – and it outlined plans to add many more to its ecosystem.

According to Ralph Achkar, director of strategic alliances, capital markets, at the data centre and connectivity provider, Colt is aiming to add some 100-150 cloud providers as PrizmNet connected partners in 2016, and will use these capabilities to augment its own MiFID II capabilities. These Colt-provided services include time-stamping, market data connectivity and disaster-recovery hosting.

At the function, Sakeena Lalljee, CRM executive for Aquis Exchange, outlined the exchange’s unique subscription-only fee structure and described how the lit venue allowed participants to avoid MiFID II’s dark pool caps while enjoying very low market impact for large orders, which she identified as a key requirement for many firms as they assess their approach to the new regulation and start data collection in early 2017 for assessing the volume caps. This was possible, she said, due to a new rule prohibiting aggressive proprietary orders.

Lalljee explained that Aquis also offers fast – sub-25 microsecond – roundtrip order execution, as well as software to help firms particularly around market surveillance and order-matching.

TRADEcho’s Daniel Shepherd explained the company’s approach to trade-reporting under MiFID II. The firm, a joint venture between Cinnober’s Boat and the London Stock Exchange Group, makes the two parent organisations’ trade data monitor services available through a single offering designed to meet MiFID II requirements. Shepherd said TRADEcho has registered as an APA for OTC securities and thus can offer reporting capabilities for both pre- and post-trade instances.

The company’s service can be used to help firms to ascertain their systematic internaliser status, which needs to be assessed quarterly. Shepherd also said the firm can help firms make the onerous shift to 5- minute reporting of OTC securities from the current 15-minute requirement, the prospect of which is daunting some market participants.

Finally, Eddie Thorn, sales account manager for capital markets at consultants SQS, described the company’s relationship with TraderServe, whose AlgoGuard platform is used to test the impact of firm’s trading strategies and algorithms before they are released to market.

SQS, which performs software QA for firms in the capital markets and other segments, has partnered with TraderServe to offer AlgoGuard via the Colt PrizmNet extranet. Thorn said traditional testing of algos using simple canned replay of market developments would not be enough to meet the criteria under MiFID II, which requires firms to understand the impact of their algorithms in the face of other algorithmic trading activity.

AlgoGuard is essentially a mock exchange, he explained, that allows firms to play their algos against potentially antagonistic strategies and explore how the algorithm may behave in the real world. Armed with this information – and some idea of the likelihood of an algorithm having a negative impact on the marketplace as a whole – compliance officers will be able to sign off (or not) comfortable that they had done adequate due diligence to meet the MiFID II requirements.

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