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Traders Magazine Online News, February 6, 2018

John D'Antona Jr.

The sky hasn’t fallen – at least not yet.

This past Saturday marked the one month anniversary of the implementation of the much hyped Markets in Financial Instruments Directive II (MiFID II) directive. The regulation was widely regarded as one of the most important regulatory initiatives undertaken by the European Union since the onset of the financial crisis in 2008. MiFID II was published together with the Markets in Financial Instruments Regulation (“MiFIR”) in 2014.

In general, MiFID II relates to the framework of trading venues/structures in which financial instruments are traded. MiFIR is concerned with regulating the operation of these trading venues and the processes, systems and governance measures adopted by market participants.

The main objectives of MiFID II include the pursuit of harmonized regulation across EU financial markets, increased competition between EU financial markets, ensuring appropriate levels of investor protection, and strengthening of supervisory powers. This paper provides a summary of the key aspects of MiFID II.

In general, MiFID II only applies to investment firms that have a physical presence in Europe that are operating under a MiFID permission and regulated by a European regulator. However, non EU investment firms that manage European mandates or compete for European clients’ assets will face competitive pressure as clients come to expect the level of transparency that they are receiving from investment firms in Europe.

One of MiFID II’ biggest expected impacts was to be on the payment of equity research by the buy-side and how the sell-side would account for such research.

So far, it appears so good.

Daniel Carpenter, Head of Regulation at Meritsoft, told Traders Magazine that while there has been no upheaval in the markets it was still too early to gauge the regulation’s effect to the fullest.

“While we may now already be one month into a post-Mifid II world, it will only be in the coming weeks and months that the full impact in the research area will be felt,” Carpenter began. “Currently, research providers of all sizes are still reconciling invoicing figures manually against data from clients. Instead, the large majority of these houses are looking to April 1st as the key date in which they will have to implement automated solutions, this being when the first large volume of invoice processing and reconciliations will be processed.”  

Carpenter added; “But it’s not just working out the cost of research that will prove challenging. Once recipients actually have the invoices, then the true value of Mifid II will kick in and organizations will begin to scrutinize whether research houses are really providing a service of value.”

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