Looking back at MiFID I, the Systematic Internaliser (SI) didn’t really take off, resulting in a meagre 1-2% market share in the FTSE 100 today. Many EU countries had different models to execute or internalise order flow, leaving the SI model on the shelf
like a dented can of beans.
Under MiFID II, Brussels will take a stricter approach by introducing quantitative SI thresholds and having a double volume cap for equities dark trading. This leads to the question: what will markets look like in 2017 if more firms opt for the SI route?
It mostly depends on whether firms will truly embrace the SI regime and start to compete on the attractiveness of their quotes, or whether they see the publication of quotes as a regulatory burden that provides no business value.
What might tip the scale and enable SIs to escape their trajectory of low market share and be propelled to new heights, is the MiFID II tick size regime. Whilst all trading venues will be restricted by a harmonised minimum tick size, an SI will be able to
offer sub-tick price improvements as a competitive edge. Let’s see whether SIs will capitalise on their second chance.