Fragmentation Milanese style

I spent the first half of this week in Milan, as the guest of Assonime and Emittenti Titoli, debating trends in the European securities industry.

What made the event especially interesting for me was that it brought together participants from both the trading community and those involved in issuing shares on capital markets. For those firms that are listed on public markets it seems that the impact of MiFID has been mixed at best. Increased fragmentation and the growth in non-lit trading have made it harder for these firms to understand the true pattern of trading in their stocks. This means that they typically understate their true liquidity in their annual reports and find it harder to know where and how to find new investors. For shareholders it’s also harder to value assets as most of the media only collate trading volumes from the primary national markets.

The event also marked the publication of a collection of studies on MiFID’s impact - Trends in the European Securities Industry by Professor Valter Lazzari - which includes a chapter that looks at how spreads and other trading costs have been impacted by the MiFID regulations.

Anyway, in true Milan style, the debate continued late into the night where lit and dark liquidity were both debated and consumed (in the form of some excellent Italian wines). The issue of lit and non-lit trading was also picked up in the FT this week. The crucial point is not that dark pools or HFT are bad, but rather that we suffer from a lack of clarity on what is really happening in terms of where stocks are traded. Imagine if the automobile or airline industries were unable to provide the market with accurate figures of how many cars were sold or passengers flown, and that it suffered from the double counting inherent in European financial markets.

My thanks to all at Assonime and Emittenti Titoli for a really informative and enjoyable couple of days.