Weighing up best-ex and best innovation

Competition amongst exchanges was a defining theme in MiFID I, but when it comes to best execution and trading venue fee structures, MiFID II might reverse some of that. MiFID II acknowledges that exchanges compete on fee structures and even establishes some basic rules (see RTS 10). But by tightening the bolts on best execution obligations, the new regulations can present conflicting... 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

The long and the short of it

MiFID II requires trading venues to store personally identifiable information (each potentially 50 characters long) relating to the traders, investment managers and clients of the orders they receive. While it might be very convenient for surveillance to have order book data married up with personal data, this requirement is not only an additional burden to system load but also... Read More

The ever-growing MiFID II shopping list

Amongst other things, MiFID II’s transparency reforms intend to clean up the quality of post-trade data and eradicate duplicate prints – long-suffered bugbears for investment firms. But in simply stating the rules, ESMA has left buy- and sell-sides puzzling over just how significant a change this is. A look at the cost benefit analysis the regulator published in September... Read More

CFTC keeps source on the menu

Open commentary for Regulation AT is now officially over, and while the CFTC mulls over the mostly cautious responses there is some time to reflect on how best to prepare for enforcement of the rules. However, the loftiest piece of proposed legislation in the carte de jour isn’t about futures or traders at all, but the underlying source code of the systems associated with them,... Read More

In true MiFID style

The European Commission (EC) has published the first in a series of highly anticipated delegated acts, defining some of the crucial details for MiFID II. Most relevant in yesterday’s document is the unbundling of research and execution fees, where the EC has largely followed the advice given by ESMA back in December 2014. In true MiFID II style, a new acronym is introduced, each... Read More

Who watches the watchmen?

With much of the new financial regulation being passed and implementation for most of it in full swing, supervision is likely to gain more attention in the coming years. Since investment firms and infrastructure providers are largely supervised by national competent authorities, it raises the question who watches the watchmen? In ESMA’s 2016 work programme, the authority... Read More

Best ex transparency moves to the next level

The draft technical standards for MiFID II require exchanges to publish quarterly execution quality reports (RTS 6). Sell-side firms are expected to digest these and update their best execution policies accordingly. Additionally, sell-sides must publish their own execution quality reports annually (RTS 7), which obviously should be digested by the buy-side. While sceptics might... Read More

Do you invest or do you execute?

Under MiFID II, both buy-side and sell-side firms are required to record and to report on, separately, the algorithms used in making both the investment decision and the execution decision. In most agency workflows that should be straightforward enough; the buy-side makes and reports the investment decision, and the sell-side is responsible for the execution decision. But how does... Read More

MiFID II data disaggregation – be careful what you wish for!

Under MiFID II pre- and post-trade data is required to be made available in an unbundled fashion – ultimately the regulator is aiming to drive down data costs. So where trading venues sell their pre- and post-trade data in the same ‘package’ they will be required to also make it available separately at a reasonable cost. Setting aside the cost discussion, the whole... Read More

ESMA stops short of a no-action letter

Having taken several years to get through the review of MiFID, it was interesting to hear from ESMA chair Steven Maijoor last week that there is an appetite to “explore the mechanisms to address regulatory adjustments in a flexible and agile manner”. Neither national authorities nor ESMA have any tool like the ‘no-action letter’ employed in the US. Given that the rules... 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

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

Stuck between a rock and a hard place

First proposed way back in 2011, work has been ongoing to narrow down the details of a common financial transaction tax (FTT) to be introduced across Europe. Back in May this year, all but one of the 11 member states keen to push ahead had agreed that by the end of 2014 it should all be worked out and the new tax phased in by the end of 2015. But according to the EU’s recent... 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

Hedging swaps with futures: a thing of the past?

As the industry continues to speculate on the trajectory of the swaps market, what’s in store for the final package trade exemption expiring on November 15, 2014, when packages consisting of swaps against futures (so-called ‘invoice spreads’) must be traded on a SEF? The problem with invoice spreads is that the futures component (typically treasury note futures)... 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

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

The long arm of the IRS

The effective date for the long-anticipated US FATCA (Foreign Account Tax Compliance Act) is here and the impact on investors’ pockets could be substantial. After today wallets may be a little lighter for those hit with the 30% withholding tax on their US sourced payments on things such as dividends, interest and insurance premiums. Even as the markets continue to stabilize and... Read More

The buck stops here

Money markets were rocked in 2008 when the Reserve Primary Fund committed the unthinkable by ‘breaking the buck’ because of its links to Lehman Brothers. This served as a wake-up call and in 2010 the SEC implemented amendments to the 2a-7 regulations which safeguard these types of investments. But many in the industry said they didn’t go far enough and on June... Read More

UCITS V – the debate rumbles on

The European Parliament vote on amendments to the UCITS IV Directive has been delayed. UCITS V, as it will be known, covers three main themes: depositary functions, regulatory sanctions and remuneration requirements. It’s the latter that no one can agree on, with bonus payment caps proving particularly contentious. Sven Giegold, the European Parliament’s Rapporteur on... Read More

Buy-side steps up

With financial markets focused firmly on risk reduction – a key priority for the G20 – the buy-side is turning its attention to the issue of counterparty risk. This parallels well with the OTC clearing requirements set out in the Dodd-Frank Act. In a reaction to the perceived risk inherent in trading leveraged instruments without adequate safeguards, the regulators stepped... Read More

Swap your workflow

We’ve discussed the current course of regulatory change, specifically Dodd-Frank here in the States, and alluded to the “total set of changes the derivatives industry is going to go through”. But one thing is clear, the interrelationships between buy-sides, sell-sides (FCMs and swaps dealers, executing and clearing brokers) and CCPs is going to get increasingly... Read More

The long arm of the law

The buy-side has traditionally been spared from the burden of most regulatory trade reporting requirements, passing this responsibility on to their brokers who hold the exchange memberships. But this principle looks to have been challenged by BaFin, the German financial regulator, with the introduction of its High Frequency Trading Act. One of the aims of the law is to ensure that... Read More

Stop/start for Dodd-Frank’s swaps rules

The Dodd-Frank Act, nearly three years old this summer, continues its slow, inexorable pace of implementation. In some respects, the financial landscape has changed unequivocally; in others, the final results of change remain to be seen, as the industry awaits additional rulemaking. Most of the current regulatory milestones impact only participants in the OTC swaps markets, but... 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

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

For every action, there is an equal and opposite reaction

ESMA recently published its Guidelines on ETFs and other UCITS issues. As their Chair, Steve Maiijoor, puts it “these comprehensive guidelines are aimed at strengthening investor protection and harmonising regulatory practices across this important EU fund sector”. At a high level here are the key provisions (plus some of my own comments): 1. UCITS ETFs must by identified... Read More

Block Trade: Endangered species or old habit?

Currently, MiFID favours block trades by granting them privileges that regular sized trades do not receive. A block trade between two institutional investors is treated rather like a Sumatran elephant that is way up on the red list of threatened species. Regulators protect block trades by allowing for pre-trade transparency waiver and delayed post-trade reporting. At the other... Read More

Do you GoCompare or are you Confused.com?

The Regulation team has great pleasure in bringing you a unique (and somewhat ironic) insight from Robin Strong, Head of Buy-side Market Strategy at Fidessa, in his paper entitled Do you GoCompare or are you Confused.com? One of the most topical issues from the point of view of both politicians and industry practitioners relates to the role of derivatives and fixed income. Robin... Read More

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