What is Multilateral Trading Facility ?
785 reads · Last updated: December 5, 2024
A multilateral trading facility (MTF) is a European term for a trading system that facilitates the exchange of financial instruments between multiple parties.MTFs allow eligible contract participants to gather and transfer a variety of securities, especially instruments that may not have an official market. These facilities are often electronic systems controlled by approved market operators or larger investment banks. Traders usually submit orders electronically, where a matching software engine pairs buyers with sellers.
Definition
A Multilateral Trading Facility (MTF) is a European term referring to a trading system that facilitates the exchange of financial instruments among multiple parties. MTFs allow qualified contract participants to collect and transfer various securities, especially those without an official market. These facilities are typically electronic systems controlled by approved market operators or larger investment banks. Traders usually submit orders electronically, and a matching software engine pairs buyers with sellers.
Origin
The concept of MTFs originated in Europe, particularly after the implementation of the Markets in Financial Instruments Directive (MiFID) in 2007. MiFID aimed to increase market competition and transparency by introducing new trading platforms, thus breaking the monopoly of traditional exchanges.
Categories and Features
MTFs can be categorized into different types, including equity MTFs, bond MTFs, and derivatives MTFs. Equity MTFs are primarily for stock trading, bond MTFs for the bond market, and derivatives MTFs focus on options and futures. The main features of MTFs are their electronic nature and efficiency, offering lower trading costs and higher market transparency.
Case Studies
A typical example is Turquoise, an MTF created by several large investment banks to provide an efficient stock trading platform. Another example is BATS Europe, an MTF offering trading in various financial instruments, successfully attracting a large number of market participants.
Common Issues
Investors using MTFs may encounter issues with insufficient liquidity, as some securities may not have enough buyers and sellers. Additionally, investors might be confused about the regulatory environment of MTFs, as regulatory standards can vary between countries.
