Full steam ahead

Yesterday ESMA published the long outstanding reference data for equities and bonds. Captains of the industry might worry little about abbreviations such as LIS, SMS, ADT, AVT or ADNT. But the engineers below deck understand perfectly well that these are the crucial coordinates to keep the ship on course. The reference data allows you to work out what MiFID II really means at an... Read More

More unanswered questions

At first glance, the MiFID II trading obligation for shares seems fairly benign, bringing the bulk of equities trading ‘safely’ back to regulated execution venues. Whilst appearing all encompassing, it still leaves room for plain old-fashioned OTC trading on an ad hoc basis (or, technically speaking, below the threshold for an EU SI). But add into the mix the trading... Read More

The same, only different?

For MiFID II to work, the industry must have a clear understanding of what constitutes a single instrument. For cash products such as equity or debt this is straightforward, but in derivatives the concept of a single instrument isn’t really appropriate and things quickly get complicated. Looking ahead, it’s feasible that an OTF or SI offers trading in a bilateral cleared... Read More

MiFID II – a catalyst for innovation

Trading in auctions – in contrast to continuous matching – has long been poised to grow under MiFID II, due to the technicalities in the pre-trade transparency regime and its waivers. With the go-live date edging ever-closer, the regulation has become a catalyst for innovation instead of being merely a cost of doing business. Exchanges are currently rolling out new and... Read More

ESMA sheds light on dark trading caps

ESMA today published its first Q&A on MiFIR transparency topics which focuses on the double volume caps (DVCs) in equity markets and clarifies how markets can transition to the new DVC regime. The document outlines how to calculate the market share of non-transparent trading for instruments only coming in scope under MiFID II (think ETFs, for example). ESMA will make the assumption... Read More

Tumbling down the rabbit hole

With much of the MiFID II Level 2 text close to being finalised, the markets continue to dive even deeper into the details and home in on Level 3 material, such as the Q&As and ESMA guidelines. One such detail lies in the phrase “traded on a trading venue” which is used in MiFIR to define instrument scope for topics such as pre- and post-trade transparency, systematic... Read More

Light relief for dark pools – but for how long?

The dark pool debate has raged across the globe for some time now and, in every jurisdiction, it’s more often than not accompanied by a smattering of assumptions on almost everything and certain knowledge of almost nothing. Fair enough, in the absence of hard facts, the term dark pool doesn’t really instil a great deal of trust from the outside world. But this lack of... Read More

A second chance for the SI?

Looking back at MiFID I, the Systematic Internaliser (SI) didn’t really take off, resulting in a meagre 1-2% market share in the FTSE 100 today. Many EU countries had different models to execute or internalise order flow, leaving the SI model on the shelf like a dented can of beans. Under MiFID II, Brussels will take a stricter approach by introducing quantitative SI thresholds... Read More

Flagging on the road to transparency

With its aim of increasing transparency around execution quality, under the current draft technical standards MiFID II will require investment firms to provide an annual execution quality report that states, for the top five execution venues, the share of passive and aggressive orders executed by the broker. In many cases the exchange provides a passive/aggressive flag on the trade... Read More

Left in the dark

Currently, it doesn’t really matter whether dark trades are executed under the reference price waiver (RP), large in scale waiver (LIS) or a negotiated trade waiver (NT). However, under MiFID II, the waiver flavour will make a significant difference. Whilst RP and parts of NT will become subject to the clunky double volume cap, LIS will not, so we may expect to see an increase... Read More

Change is the only constant

The unbundling of payment for research is a top concern for the industry. There seems to be general acceptance that, one way or another, Europe is set on the soft dollar research market becoming a hard dollar one by January 2017. Despite calls for more clarity and the recent publication of the FCA discussion paper on the regime, opinion remains divided as to how the use of CSAs... Read More

Holding a steady course

Having spent the last three months buried under a deluge of MiFID II consultation pages, the real world looked quite different when I came up for air recently. Since ESMA published the consultation back in December, Greece has elected a new prime minister, Star Trek has sadly lost the original Mr Spock, Madonna fell off a stage and a whole new season of House of Cards is available... Read More

On a quest for answers in Paris

Travelling to Paris today for tomorrow’s open hearing on MiFID II, the two issues I’ll be mulling over on the Eurostar will be record keeping for trading venues and transaction reporting. Both could potentially trigger significant changes in front and middle office workflows for many trading firms. At the core of my concerns lies the requirement for trading venues to... Read More

One step forward, one step back

Market making, at its core, is a simple exchange where the market maker gives immediate liquidity and takes the bid/ask spread in return. This is set to become much more complicated in MiFID II as ESMA is mandated to introduce market making obligations. Under ESMA’s latest draft investment firms using algorithmic trading for market making for at least 30% of the available trading... Read More

Return of the concentration rule

A long time ago in a galaxy far, far away… It is a period of calm, with primary exchanges enjoying relatively little competition thanks to concentration rules enforced in many EU countries requiring all equity business to be conducted on exchange. The arrival of a new disruptor, in the form of MiFID I, is about to turn their lives upside down forever. The blanket ban on concentration... Read More

No time for sentimentality

Whether it’s Windows 8, OS X 10.10 or Android 5, modern life beats to the drum of big software releases. Since any new EU regulation includes an automatic review clause, financial markets legislation is already following a similar pattern. With the ink barely dry on ESMA’s latest technical advice and consultation for MiFID II, it’s not a question of if we’ll... Read More

Slave to a label?

ESMA has just published a report on high-frequency trading (HFT) activity in EU equity markets. It’s good to see the regulator producing an empirical study on such a hotly-debated and emotive topic. Taking a sample of European stocks, and applying two possible definitions of HFT, ESMA estimates that between 24% and 43% of value traded is done by HFT. This sounds like a nice... Read More

Synchronising regulation

US securities industry regulator FINRA recently implemented new time-stamping rules, a topic also on ESMA’s MiFID II task list. FINRA requires US firms to express time in milliseconds when reporting trades to the FINRA facilities and order events to OATS, while ESMA’s proposal wants HFT firms to timestamp records to the nanosecond. That’s a whopping one million... Read More

Turning down the heat on dealing commission

As the FT reported earlier this week, ESMA is set to step back from imposing a much contested overhaul of dealing commission. The scrutiny of commissions has been a major concern for the buy-side, in particular ESMA’s proposals to classify all but the most generally available investment research as a non-monetary benefit. This effectively implies the ‘unbundling’... Read More

Refocusing on auctions

BATS Chi-X Europe recently announced plans to introduce opening and closing auctions for ETFs, while the LSE plans to introduce an intraday auction for all SETS equities. Although these moves differ in instrument scope, they seem to have a common aim. The buy-side has long complained about the increasing difficulties of executing large block trades. With the new double volume caps... Read More

El mañana is here

Last week I was in the beautiful city of Madrid, where besides analysing the impact of upcoming MiFID II regulation, I’ve been catching up on the Spanish Market Reforms. The upcoming changes, aka La Reforma, promise to align the Spanish market with European peers and improve competitiveness. Spain’s clearing, settlement and registry system overhaul is being tackled in 2 phases,... Read More

Pre-emptive compliance

MiFID II brings with it some significant changes to the Systematic Internaliser (SI) regime. Most importantly, ESMA will introduce quantitative thresholds that determine when a firm is obliged to obtain an SI licence. Given that these thresholds are based on average values across the previous quarter, it all looks pretty sensible and most likely to impact only the larger firms.... Read More

Money Market Funds – what cost safety?

Tomorrow the SEC’s five member Commission is expected to vote on new changes to rules for money market funds (MMFs), but will the changes be safer or costlier? The two main changes will see ‘prime’ funds move to a floating NAV and boards permitted to impose redemption fees or even suspend redemptions on a temporary basis. This is all designed to make MMFs less... Read More

Tour de Force

The current MiFID II consultation is infamously complex, covering 800 pages and 800 questions to be answered in 8 weeks. If that in itself is not enough of a challenge, ESMA invited all market participants to Paris this week for a two-day Tour de Force, aka public hearing. Be it equity, non-equity, pre- or post-trade transparency, SIs, OTFs, trade reporting, third country regimes,... Read More

History doesn’t repeat itself, but it does rhyme

While I’m not suggesting that history is repeating itself, there are certainly some interesting similarities between MiFID I and II. With its focus firmly on equity markets MiFID I saw a number of new ventures (Chi-X, BATS, Turquoise, Quote MTF, NYSE Arca Europe and others) line up to capture a share of the European markets. With MiFID II now encompassing derivatives markets... Read More

A consolidation of data?

So what does MiFID II finally say about the consolidated tape? If you remember the story so far, a number of Consolidated Tape Providers, or CTPs – each authorised to operate the data reporting services – are supposed to compete to provide said tape. And if you ever wondered what the collective noun for a group of CTPs is, it appears to be ‘an authorisation’.... Read More

Prepare yourself, MiFID II has arrived!

Yesterday the Council of the European Union published the long-awaited texts for MiFID II and MiFIR as agreed by the Council and the Parliament on 14th January. Whilst the texts are still subject to ECON and Plenary votes in March and April, and the Commission has some outstanding concerns about the derivatives rules, it’s likely we will all have to implement the rules outlined... Read More

Trading safety measures pay off

The eagerly awaited final MiFID II text potentially includes regulation around circuit breakers. Yesterday Eurex saw trading in the FDAX drop by 2% within minutes of an ECB announcement, only to recover shortly after. It’s safe to assume that the circuit breaker prevented a more serious situation. Even with a reliable and secure market structure and tightly defined corridors,... Read More

Meaningful manoeuvres in the dark

Dark pools around the globe are under constant regulatory scrutiny. The Australian and Canadian regulators now require dark trades to offer meaningful price improvement over lit markets. While Brussels-based technocrats still toy with the idea of volume caps, a recent open letter from a large group of industry representatives lobbied for the “meaningful improvement”... Read More

Next Stop St. Petersburg

Back in 2009, in the wake of the financial Armageddon, world leaders pledged in their G20 commitment in Pittsburgh that all standardised OTC derivative contracts should be traded on a platform and centrally cleared by the end of 2012. Fast forward four years and the next G20 summit takes place in St. Petersburg, Russia at the end of this week – the first meeting since the... Read More

Half a job

MiFID, the mother of all European financial regulation, rumbles on and on. The European Commission’s MiFID II consultation in 2011, the Ferber Report in March 2012, and the European Parliament vote in October 2012 were all highly anticipated and widely reported on. But despite the fact that the Council of Ministers has published more than 20 different drafts during the Cyprus... Read More

One firm, two guv’nors

Making a living as a market maker is no easy task these days, with low trading volumes and the increasing regulatory burden tending to wipe the smile from many a trader’s face. Market making certainly has some perks, though, with exemptions from the European Short Selling Regulation, UK stamp duty and the Italian Financial Transaction Tax. Then again, where the MiFID II draft... Read More

Just when I thought we were out, they pull us back in

Since 2007 many of us in the industry have been attempting to iron out the inconsistencies (and confusion) introduced by MiFID around the use of venue of execution (VoE), Market Identifier Code (MIC) and Last Market (FIX Tag 30). In May 2012 FPL’s Buy-Side Working Group published its best practices for execution venue reporting, supporting the use of standard MICs on execution... Read More

If it moves, tax it!

The proposal for a Directive implementing enhanced co-operation in the area of financial transaction tax (aka the EU FTT), with its eye-wateringly broad scope, will have to be churned through the legislation mills PDQ if it’s to meet its overly ambitious timeline. The would-be tax applies to all transactions where a counterparty is established in one of the 11 participating... Read More

A cry for help

More and more industry representatives are complaining about the politicisation of the rule-making process in financial markets. In Europe, politicisation has triggered some absurd episodes, such as the proposal for the greatest uncontrolled financial market microstructure experiment in the world (aka the minimum resting period of 500 ms) and the introduction of short selling bans... Read More

Consolidated tape – work continues

After endless discussions all over Europe, there is still massive confusion as to which European Consolidated Tape (ECT) model MiFID II will bring and when. Despite the uncertainty, the creation of a consolidated tape for equities remains firmly in the MiFID II text and on the buy-side’s wish-list. Behind the scenes of the ever-lengthening MiFID II timeline, and regardless of... Read More

MAD as a March hare

The reviews of the Market Abuse Directive (MAD II) and proposed EU Market Abuse Regulation (MAR) continue to run their course through the European trilogue process, with final Level 1 agreement expected to keep pace with the MiFID review spanning out into the second half of 2013. MAD II and MAR will bring increased obligations on firms, including criminal sanctions, in the event... Read More

CAT’s eyes on the US market

While Europe still doesn’t have a consolidated post-trade tape, US regulators are moving forward with an ambitious plan that will eventually provide them with a detailed view of the entire market, readily available on a next-day basis. After the usual drawn-out process to approve SEC Rule 613, the industry has started work on the Consolidated Audit Trail, or CAT. The SEC has... Read More

You can’t have your cake and eat it

Extraterritoriality agreements are important for many firms because they can reduce the burden of redundant and conflicting rules across different countries. Last November, considerable concerns were voiced by numerous regulators around the globe with regard to the CFTC Cross-Border Guidance relating to the US swap markets. Among the protestors were representatives of the European... Read More

Italian uncertainty continues

On 21st February, just days before Italy’s general election, Economy and Finance Minister Grilli signed the application decree for the Italian Financial Transaction Tax (FTT) ahead of its effective date of 1st March. Arguably, the decree is in breach of another Italian law, the “Statuto dei diritti del contribuente” (Statute of taxpayers’ rights, Law 212/2000),... Read More

Bless me, Father, for I have changed my algo

Managing algorithmic trading will become more difficult in the future. Regulators have already suggested in recent drafts of MiFID II and the German HFT Act that algos need to be registered/earmarked and their functionality reported to the competent authority if requested. The European Parliament (EP) takes the requirement a step further in its draft in Article 10a in MAR. Here,... Read More

Pick a model, any model

Anyone reading the recent Presidency compromise MiFIR texts (published 4th and 13th February) can see that the subject of European Consolidated Tape (ECT) features again. The Council is now opting for appointment of one entity to collect trade reports and consolidate the data into a tape. Sound familiar? Dipping into the Regulation Matters Back catalogue I fished out the 3 operating... Read More

Is FTT heading for Wall Street?

Over the past few months, many in the US trading community have been quietly mobilizing against European Financial Transaction Taxes being collected within US borders. The voice of opposition grew louder yesterday with the Security Traders Organization (STA) calling on market participants to take action by communicating to their elected representatives their “strong opposition”... Read More

La bozza del decreto

Italy’s Ministry of Economy and Finance published a draft of the decree for the Italian Financial Transaction Tax (FTT) just after the 31st January deadline imposed by the law (for an English translation visit our Raw material section). The decree sheds light on most of the dark corners left by the bill, detailing how charges are to be calculated, who is responsible for their... Read More

Coming soon – UK regulation with a whole new cast!

The number of mega blockbusters on the regulatory agenda this year would warrant their own awards ceremony. Whether it’s drama or comedy you’re after, there is certainly a regulation to suit every taste. One of my picks is the new UK regulatory structure epic Journey to the FCA (FSA, October 2012). Born out of the UK Financial Services Bill, the FSA will evolve into a new regulatory... Read More

Better consult…

Drafting new legislation is difficult and consulting the industry beforehand is sensible. Granted, where financial transaction taxes (FTT) are concerned this is tricky because no practitioner has anything good to say about it. However, beyond the mere purpose of FTT, the operational implementation is at least equally important. The current Italian FTT law has a number of issues... Read More

Dude, where is my level playing field?

At the heart of the European Union is the concept of a single market with a level playing field. Markets moving together, where trade and competition create benefits for everyone. Back in 2007, MiFID was a true testament to this when it introduced the idea of passporting regulatory oversight across Europe. Reading the latest regulatory news, there’s precious little to remind... Read More

One cliff avoided, another straight ahead!

The Italian Financial Transaction Tax (IFTT) passed into law over the Christmas holidays and shocked market participants around the world. Quite apart from the increase in tax levels compared to earlier drafts, the Italian government has invented an additional HFT tax based on the value of amended or cancelled orders (click here for more details). The French markets, luckily, didn’t... Read More

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