We summarise our findings on our interventions on trade transparency in 2021/22.
In our Business Plan 2019/20, we noted that we track the proportions of trades carried out on venues with varying levels of trade disclosure.
This follows key reforms introduced through MiFID II including increased trade transparency which changed the trading landscape. Figure 1 below shows:
- The structure of UK’s equities markets continues to offer, depending on market participants’ execution needs, diverse levels of trade transparency, as represented by the different venue types.
- The structure of the market was relatively stable during the year, which includes a period of recent heightened uncertainty and market stress resulting from geopolitical events and inflationary pressures. While trading on auctions, systematic internalisers, and dark trading were all active during this time, lit venues extended their market share, probably reflecting participants stronger preference for execution certainty.
Liquidity in different markets may vary over time for many reasons. While we do not promote any particular level of liquidity, some of our interventions aim to address factors that unnecessarily reduce liquidity. Levels of liquidity are something we monitor. In our Business Plan 2019/20, we committed to reporting summary data on liquidity. However, this is not an outcome measure.
In normal conditions, trade volume is one indicator of an asset’s level of liquidity. Figure 2 shows turnover in UK equities and liquid, investment grade, and sterling-denominated credit was stable from mid-2021 to mid-2022. At least in terms of trading volumes, recent adverse market events have not affected the trend. We saw a slight decline in volumes since February 2022, but the fall is within the normal seasonal fluctuations.