A new survey shows that not all industry participants are persuaded that the pending MiFID II reforms will make markets more efficient.
Industry participants are split as to the type of impact the next phase of the Markets in Financial Instruments Directive, or MiFID II, which takes effect January 2018, will have, according to a poll of the 1,250 senior executives attending an equities trading and technology conference in Paris.
Around one-third of the delegates said that they do not believe the regulation will make financial markets more efficient, resilient and transparent while 62 percent stated that they were confident in their pre- and post-trade analytic capabilities on their block trades.
As to the contentious issue of dark pools, around 36 percent of respondents flagged “internal preferencing” — whereby brokers first route client orders to their own dark pool to find a match — as a major issue while the lack of an operational structure was a concern for 26.4 percent. Approximately 17 percent noted that the need for external routing practices and procedures for sending trades outside their own trading venue kept them up at night.
The double-volume cap includes a limit of 4 percent of European trading on any one trading venue and 8 percent of European trading on all venues as a whole. Although they have produced much angst in the industry, the cap has also led to greater levels of innovation and an increase in large-in-scale block trading because they benefit from one of the waivers enabling market participants to negotiate trades without the need for pre-trade transparency.
When asked about the thorny issue of analysing key data, half of respondents said they believe that having platforms that collect accurate data posed the biggest challenge. The next major concerned noted by 33.3 percent of respondents points to the understanding of exactly what data needs to be reported, when and in what format. There were also issues with the inability of trading platforms to collect cross-asset trade data, although no one had a bad word for the quality of data from their brokers.
“The need for companies to manage more and more complex data to achieve and demonstrate best execution under MiFID II will be essential for making the financial markets more efficient,” says
Louis Lovas, director of solutions at OneMarketData, who commented at the conference, produced by Worldwide Business Research. “All of the transparency regulations are pushing in the direction of requiring the storage of more detailed information and firms need to be able to reconstruct a trade and that requires storing context information which can include non-digital aspects,” Lovas adds.
Yousaf Hafeez, head of business development at Radianz Services, BT, another participant at the conference, noted that the “the poll results seem to be reflective of the uncertainty around the interpretation of MiFID II. This seems to be particularly the case around block trading and dark pools.”
While views were split at the conference over MiFID II’s objectives, an overwhelming majority report that they may not be ready to cross the 2018 finishing line, according to a separate study conducted by corporate finance advisory firm, Duff & Phelps. Of the 200 senior financial services professionals questioned, only 36 percent say that they are certain that they would meet the deadline while 54 percent said they were unsure on meeting compliance.
One factor was the sheer cost with 89 percent of the asset managers, brokers and banks surveyed believing the regulation is increasing costs and compliance spend could more than double by 2020. This does not just include the regulatory implementation, but also the hiring compliance staff, regulatory penalties and remediation in case of failures.
