The German and Swiss lenders will launch a new type of fixed-income trading platform for MiFID’s Jan. 3 start date, ahead of a requirement that will become mandatory for most big banks in September. On the new venues, the banks will assume responsibility for collecting and reporting transaction data for customers, freeing them from some of the more than $1.1 billion in MiFID II’s estimated compliance costs for money managers.
The banks will set themselves up as systematic internalizers, or SIs, for bonds and derivatives, key parts of the lenders’ fixed income and currencies business. Deutsche Bank was the first bank to confirm that it will adopt the European SI regulatory status for fixed income, a move that could help it lock in business as the new law takes hold
Deutsche Bank tied with Citigroup Inc. to rank second in fixed income, currencies and commodities trading in Europe, the Middle East and Africa, according to Coalition Development Ltd. data from the first half of 2017. Deutsche Bank’s fixed income and currencies unit has declined recently but still generates about a third of corporate and investment-banking revenue.
In contrast to traditional exchanges or other venues that match multiple client orders, SI venues are designed to fill clients’ buy or sell orders directly. Banks can use their own capital to search the market or build inventories of securities to meet customers’ demands.
During the past year, exchanges, some high-speed traders and EU lawmakers have warned that SIs threaten to undermine the law’s mission in equity markets, potentially leading to more dark trading. For bonds and derivatives, however, the platforms have proved less contentious, so far.
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