THE TOP FOUR ADVANTAGES
These advantages work in favour of both the market makers and brokers that connect to an MTF and their clients.
MTFs offer a level playing field for all market participants, because buyers and sellers are always matched according to a set of transparent rules that cannot discriminate between members. So, if a user wants to buy an instrument at a certain price, they’ll be able to do so if a corresponding sell order is available on the system.
This is because MTFs are independent of any buying and selling interests, and simply connect the two to execute trades. This differs from some over-the-counter markets, where orders can be cancelled in certain circumstances – for example, if the market maker decides it doesn’t want to take on too much exposure at a certain price.
MTFs offer transparency pre- and post-trade. That’s because the volume available at each spread is visible at all times, enabling the user to find the best possible price before they place an order. Details of the orders and quotes available over the previous 24 hours are available.
Post-trade, users can see the time, price and volume of all trading activity on the MTF. These details can be downloaded for any time period, which gives traders the opportunity to analyse how buying and selling pressures have changed.
ORDER BOOK INTERACTION
Users trading via an MTF also have the opportunity to interact with the order book if they can’t find the price or volume they need. This is because brokers can add orders to the order book on a client’s behalf, which will be executed if another broker or market maker takes the other side of the trade.
Such orders can be placed at any price – potentially inside the spread – so these interactions can influence pricing across the MTF. And, because of the transparency rules that govern multilateral trading facilities, traders can see if anyone else has executed a trade at a better price.
MiFID II COMPLIANCE
MTFs are compliant with the European Union’s (EU’s) Markets in Financial Instruments Directive II (MiFID II), which was introduced to increase competition in the financial markets and enhance investor protections.
These regulations ensure that all trades executed on an MTF are subject to the same standards, regardless of which broker and market maker are connected for the purposes of the trade. They have also increased competition between market makers by requiring complete transparency on pricing.