There are not many things nicer than, on one trip last week, being able to stop between appointments to have an ice cream with a colleague outside La Scala on a hot, sunny day in Milan. There’s nothing much slower than strolling down the street with an
Italian colleague, ice cream in hand, and watching the world go by.
Other than the speed at which Italy is implementing MiFID, it seems. However, in the last couple of months there have been the first signs of movement. A big MiFID conference with over a thousand people attending from all parts of the industry. Service
providers starting to put together their specifications for new MiFID application services. MiFID programmes starting in the largest domestic banks.
Words that are often repeated in Italy are “sticky liquidity” – not about the ice cream, but about why order flow will continue to go to the local exchange. The usual example given is the Bund Future contract and LIFFE – how many years did it take DTB (now
Eurex) to win away the majority of trading in that contract?
But the point is, the order flow did move when the major firms were given a good business reason – reduced costs - for moving it. Aren’t liquidity and order flow the same thing? Not really. If a stock tanks and everybody throws in sell orders, there’s
lots of order flow but no liquidity.
If (as some estimate) around a dozen major investment firms control around 50% of equity order flow across Europe, what would make them move their Italian orders off-exchange? Probably reduced cost would. Plus MiFID requires firms to move their order flow
to a lower-cost venue if that produces a better overall result for their client.
Italy already claims to have the lowest-cost equity trading venue in Europe. When will we know if the big investment firms will be able to show that they can do it cheaper still?
“Domani”,says my Italian colleague, licking his melting ice cream with his Italian sense of urgency.