LiquidMetrix to News

Apr 2018

Post MiFID II Liquidity Dynamics Case Study: FTSE 100

Short Article e


By Chris Sparrow

Executive Summary

As we settle into the MiFID II regulatory regime, there are many questions arising regarding what the impact on liquidity has been so far. We present in this report an analysis of how several liquidity characteristics have responded for the constituents of the FTSE 100 index on several trading venues. This will allow us to assess how the individual venues and securities have responded to the new regulatory regime.

We apply a technique where we first measure the change to a liquidity metric at the venue level and then aggregate the responses across a group of securities. This differs from the approach of first computing an average value for a liquidity metric for a group of securities and then comparing that average over two time periods. By measuring the responses of each security, we can analyze outliers and gain more detailed insight into how each security responded to the change.

We apply statistical significance tests to data comparing a period in late 2017 with a period in early 2018.

While we are interested in the impact of MiFID II, we also understand that this is not a controlled experiment and that there are many other factors that can impact the liquidity characteristics we are interested in. We note the heightened volatility that occurred in early February which will almost certainly impact liquidity measures.

We find the overall response to be neutral with the average spread decreasing for most but not all securities on all venues. The number of orders increased for most securities and all venues, and depth of book liquidity decreased for most securities on most venues. It does not appear the that MiFID II has lead to a significant deterioration of market quality for the group of securities measured despite what some participants had feared would happen.

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