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

True intentions

With the advances made in automated trading in recent years, regulators are having to work pretty hard to catch up with the markets. ESMA currently has two documents out for consultation on the Market Abuse Regulation (MAR) and has announced a public hearing on October 8th. In parallel, last week saw the publication of the CME’s Rule 575 on disruptive trading. The implications... Read More

Wanted: Home for OTC trading

With MiFID II’s stated aim to push OTC trading (where appropriate) onto regulated platforms European market structure is undergoing considerable upheaval. As the first round of Level 2 consultation has just finished it’s now time to define what OTC trading is appropriate and where it can be executed. While double volume caps somewhat restrict the use of transparency... 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

Data jigsaw

Under the European Short Selling Regulation (SSR) uncovered short sales are banned and investment firms are required to track their net short positions and report them to relevant authorities/the public if they breach certain thresholds. Implementing this is already quite a tall order, but things could potentially become even more onerous in light of the requirement to flag short... Read More

Please lock the door behind you

Under MiFID II European regulators introduce new rules around algorithmic trading. Whether it’s algo IDs, enhanced audit trails or business clock synchronisation, none of these items would have been on the agenda if it were not for the rapid innovation in information technology over the past decade. Now ESMA is extending its reach into cyberspace, discussing issues such as cyber... Read More

Hang on a second!

MiFID II introduces the requirement to synchronise the business clocks of trading venues and their customers, standardising the recorded time on post-trade data, transaction reporting and, most importantly, order event auditing. Regulators argue that in the event of unusual market activity they will be able to pinpoint the exact moment things turned sour. A noble cause then, but... 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

Higher hurdles for smaller firms?

Direct market access (DMA) forms a significant part of the market given the regulatory hoops and high fixed costs that a full exchange membership implies. While today large trading firms may let their existing memberships to smaller trading firms, similar to a company sub-letting spare office space, the current MiFID II discussion paper suggests that the well-established DMA model... Read More

Oh, for some goal-line technology!

With the new technology in place for the World Cup in Brazil, long and unsettled disputes about whether the ball was in or out are a thing of the past. Discussing the scope of MiFID II with some market participants, I really wish we had an equivalent technology in financial markets. MiFID II states that certain firms dealing on their own account are exempt from MiFID II, while... 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

EU FTT, next attempt

At a meeting of EU finance ministers yesterday the discussion turned to the introduction of the financial transaction tax (FTT) under the enhanced co-operation procedure. While still lacking even the most basic facts, a revised implementation timeline is emerging along the lines of a gradual introduction of the tax, with a first phase in place by 1st January 2016 and details thrashed... Read More

Before you head for the beach…

As the i’s are dotted and the t’s crossed in the MiFID II Level 1 text ahead of its June publication in the EU’s Official Journal, ESMA is already gearing up for Level 2. In order to produce all the required documents ESMA is expected to run two consultations, one for the advice on the delegated acts – for which MiFID II’s entry into force triggers a six... Read More

Any port in a storm?

With the European Parliament’s formal adoption of MiFID II in yesterday’s plenary session, the next fundamental industry overhaul is on the horizon. Away from all the noise around HFT, I’ve been looking at the new trading obligation for investment firms that requires them to undertake all trades in shares on a regulated market or MTF, or as a systematic internaliser... Read More

Algo identifiers galore

With the German algo ID mandatory from 1st April, I was prompted to scan the latest MiFID II texts in this regard. Member states must require exchanges to be able to identify the different algorithms used for generating orders (Art. 51.6) which, on a high level, sounds just like the German HFT Act. To make things even more complex, MiFIR requires investment firms to identify in... Read More

What role for OTFs?

Last week the CFTC published another no-action letter with respect to trading swaps on a European MTF. At the heart of the discussion is the question of whether European MTFs can be considered as equivalent to US SEFs. Given that a number of banks within the scope of Dodd-Frank also need to trade swaps within Europe, this is an important issue. In Europe, the discussion around swaps... 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

Reporting, reporting, and yet more reporting

While many European firms are still getting to grips with EMIR trade reporting and the headaches it’s caused, the next reporting challenge is already on the horizon in the form of MiFID/R. It helps that MiFID/R does not require double reporting as long as the required information is reported once under EMIR. However, aiming to strengthen transparency, the scope of MiFID/R’s... 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

Patience is a virtue

Last week’s announcement of the political agreement on MiFID II felt like the Gordian knot had been cut. Maybe 2014 will turn out to be the year when the regulatory uncertainty that dominated 2013 gives way to thrilling new opportunities. Amid all the excitement (and relief that MiFID II will escape the feared entanglement in the upcoming European Parliament elections), it... Read More

MiFID II under starter’s orders

So, the much-anticipated trilogue meeting finally took place yesterday. With negotiators for Parliament and the Council of Ministers under heavy pressure to resolve issues and avoid a threatened return to the drawing board, ECON’s press release, published late last night, announced that informal agreement has been reached on MiFID II/MiFIR. Hurrah! Too early for champagne corks... Read More

Do not pass go, do not collect £200

It’s full steam ahead for the review of the Market Abuse Directive. At the end of 2013 the European Parliament and the EU member states reached a final agreement on MAD II that will cover offences such as insider dealing, market manipulation and unlawful disclosure of information. For the first time criminal sanctions will apply to serious financial market offences at an EU... Read More

All I want for Christmas

It seems there’s to be no early MiFID II Christmas present as agreement on the Level 1 text slips into 2014. Publication of the final text is now hotly anticipated to be in January or February next year at the latest, to avoid running into the European parliamentary elections in May. Thereafter, as ESMA gets to grips with the tasks ahead, 2014 will bring discussion papers and... Read More

Hong Kong braced for new rules

Electronic trading receives an increasing amount of regulatory attention around the world with international regulations and standards, such as the US SEC’s Market Access Rule and System Compliance and Integrity, IOSCO’s Principles of Electronic Trading and the ESMA guidelines in Europe, all defining specific requirements for automated trading environments. Hong Kong... Read More

Hitting the bullseye

According to recent press articles, the MiFID II trilogue has agreed on capping dark trading at an arbitrary 4% per venue and 8% overall market share. At the heart of the discussion around dark trading lies the role of transparency in the wider market. While one side claims that transparency is the only thing that can keep fragmented markets efficient, the other side worries about... Read More

Congratulations, you’ve (almost) reached Level 2

With the election of the European Parliament scheduled for May 2014, the Level 1 texts of MiFID II, MAD II and CSD Regulation are likely to be agreed before then. This means that next year will be all about drafting and agreeing the Level 2s for those laws. ESMA kicked things off at the end of last week, publishing the first discussion paper on the implementation of the Market... Read More

Time is of the essence

Last weekend heralded the official end of summertime as the EU put its clocks back one hour. Since most electronic clocks are updated automatically many of us hardly notice the difference, but others may be forgiven for waking up somewhat confused as to what time it really is. I guess that must have occurred to the legislators in Brussels when discussing the possibility of imposing... 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

Inching closer to the goal

ESMA’s work on the single rule book for EU financial markets, set out in its 2014 work programme, shows the bulk of MiFID II/MiFIR deliverables falling into the last quarter. With the Level 1 text still expected to be agreed by the end of 2013, the revision of MiFID and MAD will then unfold into advice, technical standards and guidelines over the following year. I’m interested... Read More

Value for money

The long list of topics to be tackled by ESMA in MiFID II Level 2 is laid bare in the EU regulator’s latest banking and investment services tender document, with submissions due by the end of this week. ESMA is seeking help with data gathering and analysis on a number of fronts, not least in order to specify detailed organisational requirements to be imposed on investment firms.... 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

Confusion reigns over FTT

I had the pleasure of attending the Sixth Erasmus Liquidity Conference in Rotterdam earlier this week. As well as presenting the first Fidessa Doctoral Student Award for outstanding research to Rémy Praz, I also participated in some very interesting discussions between regulators, academics and practitioners. In one of the sessions the EU’s Financial Transaction Tax and its... Read More

How are your negotiating skills?

As well as enjoying the calm remains of the sunshine before the storm of the MiFID II regulatory debate returns in September, it’s time to sharpen up those pencils ready for a new term. Over the next few months the draft directive and regulation that have been with us for nigh on two years are expected (finally) to evolve to become the new reality. One particularly worrisome area... Read More

Regulatory front-running

Front-running is regarded as a form of market abuse and is banned accordingly. Although it is widely accepted that MiFID II will implement new regulation on algorithmic and high-frequency trading, that doesn’t seem to have stopped the law makers indulging in a little ‘front-running’ of their own. First, Germany passed its HFT Act ahead of schedule and now France... Read More

If it looks like a duck…

Dividing derivatives contracts into over-the-counter and exchange-traded would seem to be a simple task, but this is far from true. Thanks to EMIR’s definition of ‘on-exchange‘, contracts that are traded on anything other than a regulated market (RM) will be considered OTC regardless of whether they are traded on an MTF or are economically equivalent to the on-exchange... Read More

Anti-price discovery tax

This week saw the publication of the European Parliament’s amendments to the EU Financial Transaction Tax (FTT). As reported in the press, lower rates (until 2017) for sovereign debt and pension funds have found their way into the proposal. Unfortunately, some very unpleasant surprises crept in as well. According to the Parliament, firms engaging in high frequency trading... Read More

Is it that time already?

It’s a little over a year since the introduction of European Short Selling regulation and already it’s time for the European Commission to prepare its review. With its report due by the end of this month, the Commission has asked ESMA to provide some technical advice. Not surprising to practitioners, but maybe to politicians, ESMA observed mixed effects on liquidity... Read More

MiFID II takes a leap forward

Hurrah! Looks like the Council of the EU has finally agreed a common approach on MiFID II/MiFIR after 18 months of negotiations. Subject to EU formalities next week, yesterday’s agreement comes just two weeks before Ireland hands the Council presidency on to Lithuania. The trilogue process – European Commission vs European Parliament vs Council versions – can now get... 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

Double whammy

The latest published version of MiFIR is narrowing waivers, while widening its impact. Specifically, it has added a double cap limit to the pre-trade transparency reference price waiver. Limitations that may apply to the 4 existing waivers continue to evolve even as the Irish presidency of the Council of the European Union enters its final month before handing over to Lithuania. Article... 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

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

Take a break

Financial markets are global and closely interconnected. While this is largely beneficial for all market participants, it can also create spillover effects with unintended consequences. An academic study argues that liquidity can affect related instruments and create a feedback loop, or, put more pessimistically, a vicious circle. In simple terms, if liquidity evaporates in a derivative,... 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

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

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

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

ESMA gears up for implementation

ESMA published a report last week on staffing and resources with regard to EMIR. After many years of public policy discussions and political deals, 2013 will be the year of hands-on implementation. Here are a few highlights from the document: • ESMA expects about 11 applications for Trade Repositories, each likely submitting a document between 200 and 1,000 pages long • ESMA... Read More

What’s in store for the coming year?

The European Commission adopted its work programme for 2013 (CWP) back in October, with the over-reaching aim to deliver financial stability, economic growth and jobs. In terms of new proposals, the CWP announced around 50 new initiatives to be tabled during 2013 and the first part of 2014. According to the EC President, José Manuel Durão Barroso: “The next step must be... Read More

The three (MAD) wise men

I find it rather appropriate this season that the three European bodies – the Commission, the Council and the Parliament (the latter with rapporteur Arlene McCarthy’s version) – are each bearing us a gift. Instead of the traditional gold, frankincense and myrrh, each is bringing its own take on the Market Abuse Directive. These slightly different texts will be... Read More

The state of play

As the Council of the European Union hands over to Ireland for the first trio of the 2013-2014 Presidency rotation (1st January 2013 – 30th June 2013), the outgoing Cyprus Presidency published a progress report on MiFID II / MiFIR on 13th December. This report outlines the current status of the compromise proposal negotiations, pointing out the main areas where Council agreement... Read More

Unintended consequences, par excellence

The law of unintended consequences is not kind. It will strike wherever it pleases and sometimes even in places you wouldn’t expect. In an ironic twist, the order-to-trade ratio (OTR) may not calm markets as intended but reduce average trade size even further. The OTR, or some variation of it, is used by many exchanges to manage their message load. Generally speaking, OTR counts... Read More

Wave your waivers goodbye

Since the introduction of MiFID in 2007 the concept of the pre-trade transparency waiver has been widely accepted and applied. However, following the latest regulatory discussions, there is a danger that we may have to wave goodbye to some of these waivers with MiFID II. It seems that the regulators feel that the existing waivers are interpreted too loosely and inconsistently across... Read More

Are we nearly there yet?

There has been a small flurry of activity this week around the subject of a European consolidated tape, but is the fog starting to clear yet? Let’s take a closer look at the facts. The parliament adopted text of MiFID II calls for an effective and comprehensive consolidated tape to be in operation as soon as possible. The scope is post-trade data for equities and equity-like instruments,... Read More

Keeping tabs on short sells

Looking through the EP adopted text of MiFIR, I am surprised to see that transaction reporting obligations include a designation to identify a short sell, as defined in the newly introduced short selling regulation. I thought the regulator had done with that! Principal business sellers would need to dynamically track their inventory across all business lines to determine if they... Read More

My Roman travelogue

Separate from the upcoming European Commission proposal for a financial transaction tax (FTT) under ‘enhanced co-operation’, Italy is pushing ahead with its own flavour of FTT, similar to the French tax which came into effect in August this year. It took me longer than I expected to find something sensible about the Italian proposals. Reports in the Italian media were a little... Read More

Another day, another document!

We now have the European Parliament adopted texts of MiFID and MiFIR under our belts (as of 26th October), but in order to complete the process of agreeing Level 1 there needs to be agreement from the Council of the European Union on what is known as the Presidency Compromise text. In the interests of transparency the Council is publishing every version of the compromise text as... Read More

The liquidity genie

Following on from the warnings to the contrary from the UK Foresight publication (see previous blog Some things in life are bad…), we have had a reaffirmation (if one was needed) last Friday from the plenary vote that the European Parliament is going to proceed to target speculation and high frequency trading through their new rules and regulations. The magic of the “Liquidity... Read More

Some things in life are bad…

The next step in the MiFID parliamentary process is the EP plenary vote, to gain the backing of the entire house, scheduled for tomorrow, Friday 26th October. The EP is forging ahead, with little likelihood of further changes, it seems, though there is a debate on MiFID scheduled for today. Given where we are in the timeline of the parliamentary process for MiFID II legislation,... Read More

Think again, things are about to change!

Do you think a retail broker has to connect to all exchanges in Europe in order to offer best execution? Of course not! MiFID’s current definition of best execution is principles-based and takes into account more than just the execution price, but things are about to change. The latest MiFID II draft from the ECON vote contains a number of amendments that may cause you to... Read More

Brussels’ rules of etiquette

The on-going flood of new regulations and directives coming out of Brussels continues. With all its consultation papers, drafts, technical or implementing standards, recitals and articles, it is hard to keep your head above the waterline. Here are a few pointers to help you structure that paper flood into some more manageable channels. European laws and legislations are formally... Read More

And the winner is … a compromise!

Whoever said the political processes to formulate MiFID II and MiFIR were complicated and boring? Look at it from the right angle and it can be every bit as exciting as the knockout rounds of a FIFA World Cup tournament. In the World Cup football teams compete against each other and only the winner progresses. The last team remaining in the competition takes home the trophy. Politics,... Read More

Sensible timeframes please!

The final text of EMIR (European Market Infrastructure Regulation) entered into force on 16th August and the next milestone for ESMA, to complete the Level 2 text by the end of September, is fast approaching. ESMA’s consultation on the draft technical standards received over 130 responses before the 5th August deadline. Whilst there is general support for the key aims of EMIR,... Read More

Ready, set, go!

France’s AMF has published a brief statement spelling out the implications of EMIR entering into force in two days’ time. In terms of timelines these are the most important dates: August 16th, 2012 – EMIR enters into force September 30th, 2012 – deadline for ESMA to transmit EMIR technical standards to the European Commission July 1st, 2013 – Earliest possible... Read More

Germany’s “Best of …” HFT law

A Europe-wide consolidated regulatory framework can have many advantages for the financial industry. Laws such as MiFID II, MAD II and EMIR create a level playing field that simplifies competition on a pan-European scale. However, in the last couple of months a number of national legislations have been enacted that make the playing field a bit more uneven, again. There are, for... Read More

New month, new tax

Yesterday, 1st August (already!), the new French Financial Transaction Tax (FTT) came into effect. With the fine print of the new tax only emerging over the previous few days, we’ve now added the French FTT to our ‘At a glance‘ page to provide you with an overview. The tax, which applies to the purchase of over 100 French stocks with a company market value of more... Read More

School’s out!

OK, school’s out and the head’s advice was “…don’t do anything silly, and come back refreshed and ready for the new challenges of next year.” The European Parliament is also on its summer break and the next ECON Committee vote on MiFID II is scheduled for 26th September, with a plenary vote on the calendar for 19th  November.  There remains, however, a whole lot of... Read More

Lost in translation

Yesterday the CNMV (the Spanish regulator) and CONSOB (the Italian regulator) banned any short selling (naked or covered) in their respective markets. It is becoming more and more difficult to believe that these bans are imposed as a measure of good market regulation and not due to unrelated political considerations. On that point, a new study by Ian W. Marsh and Richard Payne analysed... Read More

We learn from history that we do not learn from history

Many people might have missed it, but between 1905 and 1981 the New York state imposed a Security Transfer Tax. The tax was based on the par value (aka stated value, or face value) of stocks traded, transferred or delivered in New York State. It was not implemented as a financial stability measure, but as a revenue generator to fund the state deficit. Following the 1932 and 1966... Read More

The horse hasn’t bolted, yet!

The Flash Crash catapulted circuit breakers into the public spotlight and showed how they (or rather the lack of them) can impact financial markets. Since then, in Europe at least, discussions have been relatively quiet. European markets are perhaps less prone than others to such massive price swings for two reasons. Firstly, Europe does not have the trade-through rule and, secondly,... Read More

Extraterritoriality, equivalence, reciprocity? It’s all Greek to me!

Following the latest MEP discussions in Brussels can be quiet challenging at times. Not only was this particular session interrupted by protesters, but MEPs kept throwing in technical terms in regard to third country regulation that not everyone might be familiar with. So here is a quick guide to cut through all the mist. Today, the access of third country firms to the EU markets... Read More

Sacrificial lambs and unintended consequences

Andy the Trader: I heard tick size is a topic in MiFID II, again. Haven’t we been through this already? Yes, you’re right. FESE and LIBA brokered an agreement between most European equity trading venues and sell-side firms in 2009. But the topic appears again in the latest proposed amendments for MIFID II (Article 51) and on ESMA’s work program. Andy the Trader: Once again,... Read More

European Regulation – A Tale in Four Acts

According to the Chinese calendar 2012 is the Year of the Dragon. But if you ask anyone in financial markets, 2012 is the year of the regulator. The latest white paper by Fidessa aims to help market participants negotiate the increasingly complex web of regulation that will result from the introduction of initiatives such as MiFID II, MAD II and EMIR. It examines some of the unintended... Read More

ESMA Guidelines – turning change into opportunity

Back in December last year you may recall that ESMA issued guidelines on systems and controls in an automated trading environment. The headlines from those guidelines caused a steady ripple of activity across the industry, in the first few months of 2012, as firms reviewed their processes and procedures to ensure compliance by the 1st May deadline or worked to have a plan in place... Read More

NO ENTRY into the Houses of Parliament in a suit of armour, and the MAD directives

While you may think that the title of this blog entry is obviously silly, it serves as a good example of the difference between sensible rules and bad rules. Think about it – can you work out the bad one? “NO ENTRY into the Houses of Parliament in a suit of armour” may sound ridiculous but, if you think about it, it made perfect sense when it was created at a time... Read More

Busy like a bee

ESMA just published an updated version of their work program for 2012. The regulator plans to produce no less than 77 technical standards, technical advice and guidelines and recommendations this year! The newly passed law on short selling will require 18 documents, while EMIR holds the record with 41 expected publications. Enjoy making sense of all that regulation. Luckily, in... Read More

Good intentions – bad results

Lobbying  in Brussels can be such a dirty business. Hidden agendas and vested interests are dominating the daily business. Thus, I was very pleased when Finance Watch (a non-industry lobby group, the lobbying arm of Occupy Wall Street, if you will) engaged in their mission to “making finance serve society”. However, the dream of a better world was crushed last week... Read More

Liquidity and the regulation of markets

Last week’s TradeTech in London included a talk about liquidity by David Lawton, the FSA’s Acting Director, Markets, during which he discussed all the hot potatoes that MiFID II has to offer.  For a change, this was not another piece of 500 millisecond nonsense but included some sensible and well considered arguments. Here are the highlights of his key points: •  ... 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

Regulation, regulation, regulation!

As market participants are still reeling from the attack on HFT and technological innovation in the latest draft amendments to MiFID II, let’s take a look at the rapporteur Markus Ferber’s draft changes to the proposed MiFIR EU regulation. The biggest change is that the OTF category, previously proposed in an attempt to regulate OTC trading on broker crossing systems, now looks... Read More

Treat the cause, not the symptom

The current MiFID II draft proposes a minimum duration for any order of 500 milliseconds (see Should have gone to Specsavers!). Politicians seem to believe that installing a minimum duration for orders will halt the HFT ‘madness’ and bring some much needed calm to the market. Unfortunately, it looks like they are going to treat only the symptoms and not the cause. Trading... Read More

Self-test – am I a HFT strategy?

The European Parliament has issued its rapporteur report for MiFID II, as discussed in The Rapporteur’s Story and Should have gone to Specsavers! The current proposal includes a definition of high-frequency trading strategy. Furthermore, it proposes to regulate HFTs more strictly. That scared me a little bit. After all, I do some trading in my spare time so I followed the definition... Read More

Should have gone to Specsavers!

On first reading of the draft report from the rapporteur on MiFID II it is unclear from the wording if the ban on direct electronic access is only in the context of high-frequency trading. Surely this must be the case, otherwise we may as well all pack up now. Additional draft amendments to the MiFID text worthy of note are: •    the timeline is crystallising with the final... Read More

The Rapporteur’s Story

Here’s a taster of what could be coming in the Q1 report from the rapporteur for MiFID II – EU lawmaker wants draft securities law beefed up. Looks like, as we expected, HFT could take the hardest hit and OTFs may be limited to non-equities. Thanks to Tor for spotting this article.  Read More

Border politics

There have been a number of articles recently covering exchange and regulator concerns around the effective detection of market abuse in Europe. FESE has recently published a position paper on the review of MAD in which it encourages policy-makers to consider the issue of effective cross-border and cross-venue surveillance. Fragmentation of trading across several venues outside... Read More

ESMA’s increasing workload

Looks like ESMA has been granted an extra three months to write the technical standards for EMIR, until the end of September.  Weighed down with the volume of work coming out of EMIR, MiFID II and the review of MAD, ESMA is now calling again for 100% funding from the EU to free them from the domestic political wrangling that has dogged regulatory procedures. I would say we need... Read More

Are we still fighting for a truly integrated Pan-European market?

The harmonisation and consolidation of European markets was truly a hugely successful project for European financial markets within the last few years. We enjoyed massive innovation, growth and new opportunities. Think about it, without MiFID, Chi-X, BATS, European Multilateral Clearing Facility (EMCF), and the Fragulator we would still have to pay ridiculous high exchange fees... Read More

Another kind of movie night

Let’s face it, a meeting of the Committee on Economic and Monetary Affairs (European Parliament) regarding MIFID II and EMIR is hardly a topic suitable for a movie night. So I wasn’t really that excited to watch their latest discussions on Monday evening in Strasbourg via the internet. However, after seeing the new MiFID movie poster, I was inclined to tune in and watch some... Read More

Make your mind up!

According to The Trade yesterday the European Parliament (EP) is considering forcing broker crossing networks to become systematic internalisers (SIs) or multilateral trading facilities (MTFs) due to fears of excessive fragmentation. The EP may limit the organised trading facility (OTF) category to non-equity instruments only. Since the October 2011 publication of the MiFID II draft... Read More

Down with opacity and shady deals!

Following the MiFID II roadmap a significant milestone was reached in Brussels last week with the final text of EMIR (European Market Infrastructure Regulation) agreed on 9th February. After 2 years of European Parliament debate this will bring to an end “the era of opacity and shady deals”, according to Michel Bernier the EU commissioner! EMIR is one part of the history-making... Read More

Third-country confusion!

Reported last week on FT.com, a coalition of trade associations has commissioned lawyers to study the viability of a mutual recognition regime between the EU and US regulators. This is to clarify ‘third-country’ requirements in EMIR (European Market Infrastructure Regulation – reforms for OTC derivatives) and MiFID II regarding financial services businesses in... Read More

To Ping or not to Ping?

Headline items for investment firms from the ESMA Guidelines on systems and controls in an automated trading environment for trading platforms, investment firms and competent authorities are listed below: •    comply by 1st May 2012, subject to FSA adoption •    guidelines are based on existing MiFID current industry best practice with little need for any change envisaged... Read More

The long road ahead

With the arrival of the new year we have updated the MiFID II Roadmap to reflect the latest anticipated timeline for the regulatory changes. The top row of the Roadmap depicts the progress of MiFID II from Public Consultation last December, via draft legislation issued in October 2011, to likely agreement on legislation expected by late 2012. It is proposed that ESMA will develop... Read More

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