The loss of equivalence to Swiss markets on July 1st and the introduction of the Swiss Ordinance have already led to a change in liquidity formation and the immediate winner appears to be the Swiss Exchange lit primary market. With Brexit looming, equivalence remains a highly sensitive subject and political posturing is set to continue further increasing the level of uncertainty for market participants.
Further regulatory changes remain on the table at the EU level in the form of the Investment Firm Review, which is set to impact the tick size regime for Systematic Internalisers, as well as future guidelines around periodic auctions, potentially further altering liquidity formation in Europe. The renewed possibility of a hard Brexit increases the risk of future regulatory divergence between the EU and the UK two jurisdictions, raising questions in relation to liquidity fragmentation in the event of the Share Trading Obligation being implemented. Liquidnet takes a look at the latest market structure developments and what this could potentially mean for European liquidity and the wider market eco-structure as the buy-side grapples with delivering best execution as markets continue to evolve.