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What is a market place?


According to the Markets in Financial Instruments Directive (MiFID) which is the main EU Directive that shapes financial market structure, trading venues are classified as follows:

  • Regulated Markets
    – A system operated by an Exchange  where the instruments traded are admitted according to a defined procedure and the market is authorised and functions according to EU directives.

  • Multilateral Trading Facilities (MTF)
    – An MTF can be operated both by the operator of a Regulated Market or an investment firm. MTFs do not have the same obligations as Regulated Markets. Dark Pools are a particular type of MTF that are available only to institutional investors and are therefore unavailable to the public. The dark pool gets its name because details of these trades are concealed from the public.

  • Systematic Internalisers
    –  A 'SI' is an investment firm which, on an organised, frequent and systematic basis, deals on its own account by executing client orders outside of a Regulated Market or an MTF.

  • Over The Counter (OTC)
    – OTC trading relates to transactions that are ad-hoc and irregular and are carried out with wholesale counterparties. OTC transactions are characterised by being part of a business relationship which is itself characterised by deals above standard market size and are carried out outside of the systems used for systematic internalisation.

  • Organised Trading Facility
    – An OTF is a trading system designed to bring together buying and selling interests or orders related to financial instruments. OTFs were introduced by the European Commission as part of MiFID II and are focused on non-equities such as derivatives and cash bond markets. The original MiFID only covered multi-lateral trading facilities. OTFs are intended to be similar in scope to a swap execution facility.

THE VALUE PROPOSITION OF A TRADING VENUE

The value proposition of a market, whether an MTF or an Exchange, is based upon the optimal mix of different factors, such as:

  • Maximising liquidity conditions, including limited market impact and narrower bid-ask spreads
  • Faster execution times: retail and institutional investors can trade through electronic platforms which execute orders in milliseconds.
  • Efficiency:  transactions are safe and fast
  • Lower trading  and post trade costs (from trading to post-trading)
  • The level of anonymity (lit liquidity pools, dark pools): all trades are anonymous to institutional investors. Only surveillance departments at the Exchange can view the brokerage firms executing orders.

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