How will it impact your business?
The delay of the Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Investments Regulation (MiFiR) to 3 January 2018, will have come as a relief to the many investment firms that had waited until the publishing of the European Securities and Markets Authority’s (ESMA) Level 2 technical standards in September 2015. By waiting until this announcement to begin their key projects meant many firms were left with too little time to safely deliver major technology projects by the original date in January 2017.
We surveyed 25 major investment banks, asset managers and private banks in the UK to find out if they are taking advantage of the additional time to deliver on schedule, but our survey found that 40% of respondents are not confident they will be ready by the implementation date.
PA's global team of experts have a deep understanding of the implications of regulatory change from a strategic and operational perspective. Our extensive experience in helping organisations across all financial classes and practices understand and navigate regulatory initiatives to ensure your business is compliant.
High frequency and algorithmic trading have come under increased regulatory scrutiny in recent years – not least driven by Michael Lewis’ damning exposé of its murky world in his acclaimed book ‘Flash Boys’. This has been bolstered by recent market volatility that has been attributed to high frequency traders – the volatility in the US treasuries market in October 2014 being a prime example.
MiFID II could not fail to cover such emotive and important topics. Aside from any evaluation of their likely effectiveness, the latest texts from Europe should be cause for consternation for many banks and trading houses – even if they might not consider themselves as a dedicated high frequency trading outfit.
The new rules, in particular those aimed at strengthening conduct of business, will have several unintended impacts for capital markets businesses. MiFID II is primarily aimed at regulating secondary market transactions, but the rules will also capture primary market transactions.
In some cases, the European Securities and Market Authority (ESMA) has specified how the rules should apply to primary markets, but in many areas, such as inducements and product governance, it has not.
MiFID II will have a significant impact on asset managers. It will affect their use of dealing commission, appropriateness tests for products, restrictions on over the counter trading, transparency of market dealings and commodity derivatives position limits.
While most aspects are now well understood since European Securities and Markets Authority (ESMA) published its technical advice to the European Commission, several areas are still unclear. One particular such area is on commodity derivatives reporting.
Commodity firms are facing the biggest step change as a result of the greatly increased scope of MiFID II. Broad exemptions that could previously be used to take firms out of the scope of MiFID I, such as ‘dealing on own account’ or ‘ancillary trading activity’, have been removed or severely tightened. In addition, the commodity products considered to be financial instruments have been widened to include physically settled derivatives, emissions allowances and financial derivatives – regardless of their settlement method or trading venue.
This means commodity firms previously unaffected by MiFID I will be considered a financial services company and, from 3 January 2018, will be liable to the full set of MiFID II regulations – including commodity position limits.
If you believe your company will be impacted by the new MiFID II proposals and are interested in finding out more, please contact one of our experts below.