LONDON, Nov 15 (IFR) - JP Morgan has confirmed plans to become a Systematic Internaliser for all fixed income instruments under MiFID II.
The new designation of liquidity provider allows the bank to execute bilateral trades, outside of a regulated market, in instruments that are in-scope for Traded on a Trading Venue (TOTV) rules that form part of a sweeping overhaul of European markets.
By volunteering for SI status across all non-equity products, including fixed income and equity derivatives, JPM will be able to execute client orders for bonds and derivatives on its own account without the need to execute through multilateral trading facilities and organised trading facilities.
The bank hopes the move will help to alleviate the reporting burden for clients. The new rules, which become effective on January 3, subject all in-scope trades to pre-trade and post-trade transparency requirements.
“We remain committed to providing liquidity to the market and making prices for our clients. Becoming an SI ensures we can continue to do that effectively,” said JP Morgan in a client note. JPM will report SI trades via Tradeweb, BATS or its own Approved Publication Arrangements during the voluntary opt-in period.
The bank believes becoming an SI will help to avoid a potential liquidity disruption when the rules take effect, as some fear that counterparties may be deterred from accessing dealer liquidity due to uncertainty around their own reporting requirements.
JP Morgan is the first US bank to volunteer for SI status across fixed income instruments. Deutsche Bank confirmed last month that it will seek the designation for bonds and derivatives, while many banks have already signed up as SIs for their cash equity activities.
In fixed income, MiFID II represents a step-change in market structure with transparency and venue trading becoming compulsory for the first time. In addition to pre and post-trade reporting, as an SI, JPM will be required to report all trades – including those that it quoted on but did not execute - on a quarterly basis.
The first mandatory SI determination will not be made until September 2018. At that point, JPM will reconsider its voluntary SI status in any sub-asset classes where it does not meet SI thresholds. (Reporting by Helen Bartholomew)