If it ain’t broke, don’t fix it!

Ana Herrero-WallaceBrokers sometimes use delayed reporting to reduce market impact for large equity trades given to them by buy-side clients on a risk basis. Currently, trade reporting can be delayed for between one hour and three days, depending on the size and liquidity of the stock, but the proposed new regime could impose a maximum delay of one day. Providing transparency to help in the construction of a European consolidated tape is key, but not when it comes with a cost to the end investor.

If approved, brokers might not be willing to take principal trades if they think they cannot unwind their positions while reporting the same day to a wider market at the price guaranteed to the client. The brokers could add a price premium to risk trades but the buy-side may well decide that this is too expensive. The worst affected would be the small and mid caps, and it would only bring more volatility as traders rush to complete orders before disclosing them at the close.

At the FPL EMEA Trading Conference earlier this week, concerns were raised about the fact that the regulations are driven by politicians motivated only by their own re-election prospects, who don’t necessarily understand the rules of the game before imposing legislation that won’t particularly favour those they are supposedly trying to support. The politicians seem to have an agenda to reduce the risks taken by institutions as well as by individual investors. But they have lost sight of the fact that the wholesale participants that delay reporting of their large trades represent many millions of collective investors in the market and across all economic spectrums. Essentially, they are playing with my pension and yours.

Do you think a ban in delayed reporting will narrow the investment choices for individual investors?

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One Response to “If it ain’t broke, don’t fix it!”
  1. David Joyce says:

    Delayed reporting is not just an issue for the sell side!
    A number of brokers were in Brussels recently to lobby against some of the proposed regulatory changes like the high costs of the ban on delayed reporting.
    Both the Sell and Buy – side are proposing a campaign of media activities to highlight issues such as the cost to pension funds of proposals such as delayed reporting (could result in increased premiums for risk trades and more volatility as traders rush to complete orders before disclosing to the market.) The message has been democratized by the buy – side. However, it seems that Brussels is still adamant about not changing the proposed rules surrounding delayed reporting.

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