LeapRate Exclusive… In 2010, after the crisis, the EU launched a consultation review to update MiFID. This led to the creation of a comprehensive legislation called MiFID II which was formally adopted in 2014. It was supposed to start operating in January 2016 but European Securities and Markets Authority (ESMA) extended the date to 3rd January 2018.
The goal of MiFID II is to protect investors and increase transparency across stocks, derivatives, fixed income, CFDs, High Frequency Trading (HFT), algorithmic trading, and currencies.
MiFID II affected everyone involved in the financial markets across the EU including: fund managers, banks, exchange trading venues, pension funds, and retail investors. ESMA has later published Guidelines on certain aspects of the MiFID II suitability requirements.
Chris Hollands, Head of European Sales at TradingScreen, commented on the impact of MIFID II across FX one year on:
The biggest impact of MiFID II’s transparency objectives has been felt in the Fixed Income, OTC Derivatives and FX worlds. Across these asset classes, demand for Execution Management Systems (EMS) to provide liquidity aggregation, increasingly sophisticated analytics, as well as access to a wider set of execution venues and trading protocols has been very apparent.
The best execution imperative across a broader range of increasingly electronic asset classes and execution options, including the emergence of more block trading venues in equities, has led to greater buy-side demand for in trade and post trade analytics from broker neutral players.
Finally, MiFID II has, as intended, brought about a more transparent and upfront buy-side view on execution costs in the Listed markets, in addition to a preference for license versus transaction-based pricing models for independent execution tools.
Vikas Srivastava, Chief Revenue Officer in institutional foreign exchange trading platform Integral, has also shared his outlook on the impact of MIFID II.
LR: How the industry has adapted one year on from the MiFID II implementation date?
Vikas: Without a doubt MiFID II and evolving regulations will continue to push for higher levels of transparency and compliance from the industry.
With the challenges posed by stringent requirements for execution, transparency and reporting, we’ve seen many players in the industry turn to cloud-based solutions to navigate these directives. Using this approach many of our clients were able to seamlessly fulfill the regulatory needs including RTS-27 reports in June.
Although being compliant is the primary motivator, we are also seeing firms take advantage of the standardized reporting and methodology required by MiFID II to deliver and prove best execution for their clients. What has become apparent over the last year is that the participants are learning to see regulations as less of a box-ticking exercise and more of an opportunity to differentiate themselves from their competitors and therefore as a catalyst for business growth.
LR: From your unique perspective, what changes do you envision for the industry in the coming months? Especially after all the changes driven by regulation such as ESMA’s leverage cap.
Vikas: We expect that regulations will continue to impact Retail FX significantly. Particularly given the expectations of higher market volatility over the coming months as the industry faces the challenges posed by the prospect of a hard Brexit.
LR: Who are the real beneficiaries of MIFID II?
Vikas: The entire industry has benefited from MiFID II in that greater transparency helps the market operate more efficiently. Even the market participants who initially struggled with some aspects of the regulations are learning to adapt. In 2019 we will see less firms viewing MiFID II as a burden and more leveraging its benefits to serve their customers better.
LR: What can we expect from MIFID II in 2019?
Vikas: Continued implementation of MiFID II especially with respect to standardization around TCA.