Instinet and Sun Trading to Provide Off-Exchange Liquidity Ahead of SI Regime

The relationship will see Sun Trading provide liquidity streaming to Instinet’s buy- and sell-side clients designed to offer price improvement and larger fill sizes, alongside the agency-model broker’s existing connectivity to market makers, lit markets and dark pools.

The implementation of the revised Markets in Financial Instruments Directive (Mifid II) on January 3, 2018 is expected to cause significant changes to the ways in which capital markets participants source liquidity and route orders, predominantly through the new systematic internalizer (SI) regime, designed as a method of bilateral trading for executing orders outside traditional venues like multilateral trading facilities (MTFs), regulated markets and organized trading facilities (OTFs).

“Mifid II will cause broker crossing networks (BCNs‎) to either convert to MTFs or close, and at the same time will curtail dark pool trading further by restricting trading at below large-in-scale to mid-point and capping volume at 8 percent of pan-European volume,” Ben Stephens, head of business development at Instinet Europe tells WatersTechnology. “As a result, liquidity providers like Sun Trading, who provide at the touch prices, will‎ look to register as SIs and to transparently provide bi-lateral quotes to their counterparties. Instinet believes that giving its clients access to these sorts of partnership with bank and non-bank liquidity providers will form an important trading option in the post-Mifid II landscape.”

Sun Trading’s go-live with Instinet coincides with the firm’s launch of its SI platform in London, which will form the basis of the firm’s ongoing bilateral trading and related quote provision in Europe. The firm intends to register as an SI in European equity securities.

“Establishing this bilateral liquidity relationship with a leading agency broker like Instinet gives us the ability to provide meaningful liquidity to a wider set of counterparties across Europe by leveraging our leading market making capabilities,” said Jamal Tarazi, head of European trading at Sun Trading in a statement. “Being a direct trading counterparty to a partner like Instinet is a part of a larger global strategy, where we are aiming to continue being a liquidity provider in innovative ways that benefit end investors.”

The partnership follows a similar agreement between Instinet and Virtu Financial, announced in June this year. Stephens says there is an expectation that upwards of 20 firms will register as SIs in equities between now and the end of the first half of 2018, indicating that further partnerships of the same nature may be forthcoming.