It’s not all about you!

Ana Herrero-WallaceI came across an interesting report published by the European Capital Markets Institute (ECMI) and CFA Institute entitled Restoring Investor Confidence in European Capital Markets. This piece of research is intended to defend the position of the European retail investor. One of the key points ECMI makes is that the initial MiFID legislation hasn’t benefited the end investor. Wait a second! Wasn’t MiFID drafted to help the man on the street?

Even though MiFID brought more overall liquidity, with more venues, the end investor doesn’t normally have direct access to these new platforms. In addition, MiFID has reduced investors’ choice as trading has been concentrated in large cap or blue chip equities and small and mid-cap securities have been experiencing lower liquidity than in pre-MiFID times.

Another interesting point made in this report is that best execution is not functioning in the way it was intended to. Instead, the costs of connections to new venues and the lack of a consolidated tape have counteracted the competitive benefits of lower trading fees for the end investor.

The report goes on to say that the new investment in technologies derived from the needs of MiFID have created a “two-tier market” with no room for the retail guys as only institutional players can access broker SOR and algorithmic trading systems.

Surprisingly, it seems that Brussels did not get the message that the first implementation of MiFID was detrimental for the end investor. Now they want to extend the thresholds for the size of orders that can be executed in dark pools. So, we might see another similar report in a couple of years criticising, once again, the lack of consideration for the retail market. Let’s not forget that it is unlikely that any order we could trade from our online account will be executed in anything other than the primary market.

Read the paper for yourself and let us know your thoughts.

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3 Responses to “It’s not all about you!”
  1. steve grob says:

    The problem is one of education – if you ask any retail market participant whether he or she knows about MiFID and the best ex obligations it puts on their brokers they will stare at you blankly. Try it for yourself and ring your broker – I have – you can read about my experience at

  2. Mark says:

    Perhaps I haven’t seen an overwhelming improvement (to be fair I’ve not done much trading post-MiFID, nor a huge amount before), but I wouldn’t say MiFID has done nothing to help me.

    As it happens, a couple of weeks ago my VOD trade was executed on PLUS, at a slightly better price than was published at the time by LSE, BATS and Chi-x – I actually had the latter two live order books open in my browser while I was hovering over the “sell” button.

    I’d agree that we little folk don’t get the full intended benefits – looking at Halifax’s execution policy (at least it has one, albeit suitably vague), it only routes to LSE, PLUS and AIM, so maybe I was just lucky…

  3. Ana Herrero-Wallace says:

    Very interesting comments, thanks.
    I just read the best execution policy from Barclays Stockbrokers. They trade in regulated markets like LSE and Plus. No mention of any trading on MTFs other than their claim ‘that the use of MTFs is expected to increase, both generally and in terms of Barclays’ reliance upon them.’
    Their policy finishes saying that they trade OTC which ‘can result in enhanced terms for some deals.’ I did notice that when placing my trades online my order was price-improved using the Retail Service Providers (RSPs.) Those orders were filled by a market maker that provided a better price than what I would have obtained on the primary market.
    Could further regulation, that attempts to protect the end-investor, mean that retail stockbrokers might have to pass along the costly regulatory burden with higher commissions? Barclays standard retail rates at almost £13 per trade are pretty expensive already! That is 130 Basis Points commission when investing £1,000, while the average institutional commission in the UK is no more than 10 Basis Points.

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