Group Co.
MiFID II Spotlights TCA, 'Best Ex'
Traders Magazine Online News, December 1, 2017
Kepler Cheuvreux has signed more than 300 clients this year as the agency broker expects transaction cost analysis and detailed analysis of best execution to become more important under new European Union regulations.
The firm was formed in Paris in 1997 as the equity brokerage business of Swiss private bank Bank Julius Baer. In 2013 Kepler acquired Cheuvreux from Crédit Agricole Corporate and Investment Bank and the company now has four business lines: equities, debt & derivatives, investment solutions and corporate finance. Headquartered in Paris, the group employs around 550 staff and is present in 10 counties in Europe, in the US in Boston and New York and will soon open an office in Brussels.
Mark Freeman, head of execution sales at Kepler Cheuvreux, told Markets Media: “Kepler Cheuvreux has substantially grown the firm’s electronic client base since 2014 by a relentless focus on execution performance and quality. In 2017, Kepler Cheuvreux signed on more than 300 clients across its range of execution, research and advisory services.”
From January MiFID II will strengthen the requirement for firms to evidence the steps taken to achieve best execution.
“TCA and detailed analysis of best execution will grow in importance – those brokers who provide evidence of the quality of execution should stand to do more business,” added Freeman.
In the Extel Survey for Europe this year Kepler Cheuvreux moved from tenth to third for equity trading and execution, The broker said in a statement: “We are now first in electronic Trading, first in high-touch sales trading, third in in Delta One/ETFs and ninth in program/portfolio trading. We are one of the few agency only brokers in Europe that own our execution technology (in-house R&D).”
MiFID II will also bring significant changes to European market structure. From January there will also be volume caps on trading in dark pools although large-in-scale (LIS) block trades have a waiver from these caps.
Freeman added: “MiFID II will undoubtedly lead to more fragmentation initially but we do expect that volume traded in blocks and auctions will markedly increase.”
Trading in periodic auctions takes place in a lit book so the MiFID II dark volume caps do not apply. As a result, exchanges across Europe have already launched periodic auctions and LIS offerings, which have been setting volume records this year.
In addition, the new regulations prohibit broker crossing networks and instead requires all firms committing capital to trades to use systematic internalisers, which could also initially boost lit volumes. Consultancy Tabb Group said in a report in August that 60% of buyside institutions expect to use SIs from the start of MiFID II, albeit tentatively.
“Of those who said they would not use the regime, most said they planned to make an assessment of SIs in the second half of 2018, once more data was available on execution quality,” added Tabb. “This limited usage initially, combined with restrictions on dark pools, implies activity will shift back to lit markets during early 2018.”
The biggest concern over SIs from the survey was the lack of clarity being provided by brokers on their SI plans, including how they propose to access other SIs and how their order flow would be routed within the regime.
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