Well, in principle, I am ok with this and frankly, I would be surprised if we did not have a single EU financial regulator in say 10 years. But yes, slowly does it, financial regulations, when enacted in a rush, always throw up problems, and unfortunately at the time when you are least (politically, economically and financially) able to handle it (such as this spectacularly stupid and incompetently handled Northern Rock Crisis). But execution is KEY!
But we need to look at how MiFID has worked out, where there is flexibility, those locations have won. Many jurisdictions have no idea what they have implemented. Many financial institutions do not know what they are faced with and they are heading towards extinction if they do not change their business models. For those who think that this will not impact, see what London faced after the big bang. There are no british investment banks left but it is now a major financial centre. Similarly, most of the european countries will end up with sales offices while the production, engineering and major distribution centres will be in say Paris, London or elsewhere.
Read and resolve to fix this.
All this to be taken with a grain of piquant salt!!!
Showing posts with label MiFID. Show all posts
Showing posts with label MiFID. Show all posts
Wednesday, December 5
Monday, November 19
Teething Troubles for MiFID!
See what I mean by ill thought out regulation? on the other hand, it could just be teething troubles and this will settle down soon. I suspect its 40:60, but the jury is out! MiFID seems to be causing some teething troubles as this report suggests: I would actually see the fragmentation as a reasonably good step as more fragmentation will break the hidebound European trading structures and shake up the sclerotic participants. This should help reduce costs and increase efficiency.
The markets in financial instruments directive might be only two weeks old but fund managers and brokers have complained fragmentation resulting from the European Commission directive is affecting their ability to trade European equities.
Mifid has been introduced to foster competition between trading and trade reporting venues but an immediate effect has been to complicate how they trade European stocks, institutions have argued.
London-based companies aired these concerns last week after the share prices of some UK blue chip stocks rose sharply despite slow trading on the London Stock Exchange.
It was only when they checked Boat, the trade reporting platform backed by a consortium of investment banks, that they saw heavy trading in those names being executed away from the LSE.
A handful of the largest investment banks are connected to all viable European trading venues and are just going live on the systems – smart order routers – that aggregate price information. Those brokers that have not connected to these platforms complain they are at a disadvantage compared with their larger rivals.
One broker said: “We are not connected to Boat and there has not been a lot of visibility into how Boat works.”
Boat argued it is open to all institutions, having increased its number of clients from 10, when the formation of the banking consortium was first reported by Financial News in August last year, to 25.
But other companies are embracing the opportunities presented by Mifid. UBS last week linked up to Chi-X, the trading system owned by Nomura’s agency broker Instinet, and the Irish Stock Exchange for the first time.
Nick Holtby, head of European client trading and execution at UBS Investment Bank, said the additional venues would increase the range of liquidity pools available.
The Swiss bank said last week it was advising its clients that it will “smart order route all client flow unless it has a specific instruction from the client not to do so”. The bank added: “The UBS smart order router will access viable pools of liquidity such as exchanges, multi-lateral trading facilities and dark pools and route flow accordingly.”
The use of trading systems, such as Chi-X, and dark pools of liquidity, which are anonymous matching systems administered by banks or brokers, is set to increase under Mifid.
All this to be taken with a grain of piquant salt!!!
The markets in financial instruments directive might be only two weeks old but fund managers and brokers have complained fragmentation resulting from the European Commission directive is affecting their ability to trade European equities.
Mifid has been introduced to foster competition between trading and trade reporting venues but an immediate effect has been to complicate how they trade European stocks, institutions have argued.
London-based companies aired these concerns last week after the share prices of some UK blue chip stocks rose sharply despite slow trading on the London Stock Exchange.
It was only when they checked Boat, the trade reporting platform backed by a consortium of investment banks, that they saw heavy trading in those names being executed away from the LSE.
A handful of the largest investment banks are connected to all viable European trading venues and are just going live on the systems – smart order routers – that aggregate price information. Those brokers that have not connected to these platforms complain they are at a disadvantage compared with their larger rivals.
One broker said: “We are not connected to Boat and there has not been a lot of visibility into how Boat works.”
Boat argued it is open to all institutions, having increased its number of clients from 10, when the formation of the banking consortium was first reported by Financial News in August last year, to 25.
But other companies are embracing the opportunities presented by Mifid. UBS last week linked up to Chi-X, the trading system owned by Nomura’s agency broker Instinet, and the Irish Stock Exchange for the first time.
Nick Holtby, head of European client trading and execution at UBS Investment Bank, said the additional venues would increase the range of liquidity pools available.
The Swiss bank said last week it was advising its clients that it will “smart order route all client flow unless it has a specific instruction from the client not to do so”. The bank added: “The UBS smart order router will access viable pools of liquidity such as exchanges, multi-lateral trading facilities and dark pools and route flow accordingly.”
The use of trading systems, such as Chi-X, and dark pools of liquidity, which are anonymous matching systems administered by banks or brokers, is set to increase under Mifid.
All this to be taken with a grain of piquant salt!!!
Tuesday, September 11
when domestic laws cross boundaries - A race to the top anybody?
Extra-territoriality of laws is one thing that is guaranteed to get some people very wound up. In other words, how dare laws not passed by the country's elected representatives impact the country, its citizens and its businesses? Whether its the United Nations, the World Trade Organisation, the European Commission, International Criminal Court or what have you. I previously talked about how a US court had asked Iran to pay damages to US citizens. Now that's extra-territoriality in practise. Remember when the Sarbanes Oxley Law started impacting European Businesses or when American laws meant that British citizens were extradited to USA despite committing no crime under British Law? Remember how NY Mayor Giuliani and Mayor Bloomberg fulminate against the city tax evaders amongst the UN delegations? That's extra-territoriality!, Or when London Mayor splutters against the US Ambassador for not paying his beloved congestion charges because the US thinks the congestion charges are extra-territorial laws. So on and so forth. Generally, countries try to avoid doing this, it needlessly gets people upset and the eventual benefits are not worth it.
But the EU is different. It is pushing for standards above and beyond what national European parliaments have agreed to. I would like to draw an attention to how the EU's soft power is established through these standards. I point to MiFID, REACH, ICC and IFRS as four standards that are now global or are getting global respectability. This is, in turn causing national governments to lose power. Let us take each example. MiFID (Markets in Financial Instruments Directive) is a European wide standard for investor protection, information transparency, pricing and quoting of advice and financial instruments, reporting of transactions, etc. This, very simply speaking, will standardise the behaviour of all investment firms across the EU and is really quite path breaking in nature. It also allows for a British investment firm to work in Athens and anywhere else seamlessly (well, near enough). Guess what? European investment banks who have to cater for MiFID are now considered to be at the top of the investor protection league. The quality mark. So the Japanese, Australian and other Asian and Latin American branches are actually telling their customers that they dont just satisfy Japanese protection requirements, but go for the gold standard called as MiFID!. So here we are, it’s almost like a slap in the face of the local financial regulator like the FSA in Japan, which states that it doesnt really care as much about investors as that of EU!
Or take ICC for another example, if EU had not pushed hard and made sure that all EU members had signed up, this possibly first extension of criminal laws on an international level would never had come up. What it does mean that unilateral action is going to slowly get more difficult, also war crimes are even more difficult. Take the previous blog post of IFRS, again, the fact that the EU has adopted it means that it has become the global standard and firms love it. Or the fact that California Governor is wanting to sign up to European standards for environmental legislation. Or how about the EU REACH protocol, which is for the safety of chemicals. At this moment, Wall Mart is trying to ask its suppliers to avoid 3-4 chemicals which have been identified by REACH. Now all this is causing some of the American firms and American government quite a lot of angst because if a state the size of California and a company the size of Wall Mart go outside American law and standards to adopt European standards, then it is indeed a slap on the face.
This is the flip side of the race to the bottom, where while on one hand, you have tax arbitrage (countries compete with trying to have the lowest tax rates!) and people accuse them of having a race to the bottom, regulation can be a race to the top. Curious, no?
All this to be taken with a grain of piquant salt!!!
But the EU is different. It is pushing for standards above and beyond what national European parliaments have agreed to. I would like to draw an attention to how the EU's soft power is established through these standards. I point to MiFID, REACH, ICC and IFRS as four standards that are now global or are getting global respectability. This is, in turn causing national governments to lose power. Let us take each example. MiFID (Markets in Financial Instruments Directive) is a European wide standard for investor protection, information transparency, pricing and quoting of advice and financial instruments, reporting of transactions, etc. This, very simply speaking, will standardise the behaviour of all investment firms across the EU and is really quite path breaking in nature. It also allows for a British investment firm to work in Athens and anywhere else seamlessly (well, near enough). Guess what? European investment banks who have to cater for MiFID are now considered to be at the top of the investor protection league. The quality mark. So the Japanese, Australian and other Asian and Latin American branches are actually telling their customers that they dont just satisfy Japanese protection requirements, but go for the gold standard called as MiFID!. So here we are, it’s almost like a slap in the face of the local financial regulator like the FSA in Japan, which states that it doesnt really care as much about investors as that of EU!
Or take ICC for another example, if EU had not pushed hard and made sure that all EU members had signed up, this possibly first extension of criminal laws on an international level would never had come up. What it does mean that unilateral action is going to slowly get more difficult, also war crimes are even more difficult. Take the previous blog post of IFRS, again, the fact that the EU has adopted it means that it has become the global standard and firms love it. Or the fact that California Governor is wanting to sign up to European standards for environmental legislation. Or how about the EU REACH protocol, which is for the safety of chemicals. At this moment, Wall Mart is trying to ask its suppliers to avoid 3-4 chemicals which have been identified by REACH. Now all this is causing some of the American firms and American government quite a lot of angst because if a state the size of California and a company the size of Wall Mart go outside American law and standards to adopt European standards, then it is indeed a slap on the face.
This is the flip side of the race to the bottom, where while on one hand, you have tax arbitrage (countries compete with trying to have the lowest tax rates!) and people accuse them of having a race to the bottom, regulation can be a race to the top. Curious, no?
All this to be taken with a grain of piquant salt!!!
Friday, August 17
shining a light on a little known corner of the regulatory world where it intersects with outsourcing
MiFID will most probably impact these following activities (as noted by Clifford Chance)
(a) Provision of regular or constant compliance, internal audit, accounting or risk management
support;
(b) Provision of credit risk control and credit risk analysis;
(c) Portfolio administration or portfolio management by a third party;
(d) Provision of data storage (physical and electronic);
(e) Provision of ongoing, day-to-day systems maintenance/support; and
(f) Provision of ongoing, day-to-day software/systems management (e.g. where third party
carries out day-to-day functionality and/or runs software or processes on its own systems).
ChaseCooper further reports that:
Now this is serious stuff, this level of management negligence is definitely worrisome and while the FSA might be going for principles based regulation, until and unless it actually turfs out people and firms from the financial services market for mismanagement and not just mis-selling/fraud, we will keep on seeing this form of mismanagement. So you might well ask, why am I going all anal about an SLA? It is because of the "broken window syndrome".
The what? Well, the idea of the broken window syndrome was adopted by the NY Police and they clamped down on minor crimes such as broken windows, squeege merchants and petty crime. The idea being that if you make sure that minor crimes are avoided, then major crimes are reduced, as it happened in NY. While that is being hotly debated in the USA, it does make sense. When you are faced with basic mismanagement of this nature, such as not looking after outsourcing contracts, it will not hurt immediately, but in case of crashes or market turns, this suddenly becomes a pain. And the tragedy is that the people who get hurt are the people least able to handle that hurt, such as pensioners.
Furthermore, management of outsourcing contracts is a painful task, specially when management think of it as "manage my mess for less" also means "out of sight out of mind". It does not, even if you have outsourced your business processes or technology, you still need to make sure that they are doing what they are supposed to. Till now, there was no regulatory downside, only business downside. But with MiFID, it has now come under the ambit of the regulators. I wonder how many vendor management departments have been involved in the MiFID process? Based upon my limited knowledge, I would say that 2 out of 3 vendor management departments have not been fully involved (ask around your outsourced vendor partner relationship manager about MiFID and the impact, see them gibber and worry!) and if they are worried, you should be too!!!, November 1, 2007, the go live date is not that far away!
All this to be taken with a grain of piquant salt!!!
(a) Provision of regular or constant compliance, internal audit, accounting or risk management
support;
(b) Provision of credit risk control and credit risk analysis;
(c) Portfolio administration or portfolio management by a third party;
(d) Provision of data storage (physical and electronic);
(e) Provision of ongoing, day-to-day systems maintenance/support; and
(f) Provision of ongoing, day-to-day software/systems management (e.g. where third party
carries out day-to-day functionality and/or runs software or processes on its own systems).
ChaseCooper further reports that:
Now this is serious stuff, this level of management negligence is definitely worrisome and while the FSA might be going for principles based regulation, until and unless it actually turfs out people and firms from the financial services market for mismanagement and not just mis-selling/fraud, we will keep on seeing this form of mismanagement. So you might well ask, why am I going all anal about an SLA? It is because of the "broken window syndrome".
The what? Well, the idea of the broken window syndrome was adopted by the NY Police and they clamped down on minor crimes such as broken windows, squeege merchants and petty crime. The idea being that if you make sure that minor crimes are avoided, then major crimes are reduced, as it happened in NY. While that is being hotly debated in the USA, it does make sense. When you are faced with basic mismanagement of this nature, such as not looking after outsourcing contracts, it will not hurt immediately, but in case of crashes or market turns, this suddenly becomes a pain. And the tragedy is that the people who get hurt are the people least able to handle that hurt, such as pensioners.
Furthermore, management of outsourcing contracts is a painful task, specially when management think of it as "manage my mess for less" also means "out of sight out of mind". It does not, even if you have outsourced your business processes or technology, you still need to make sure that they are doing what they are supposed to. Till now, there was no regulatory downside, only business downside. But with MiFID, it has now come under the ambit of the regulators. I wonder how many vendor management departments have been involved in the MiFID process? Based upon my limited knowledge, I would say that 2 out of 3 vendor management departments have not been fully involved (ask around your outsourced vendor partner relationship manager about MiFID and the impact, see them gibber and worry!) and if they are worried, you should be too!!!, November 1, 2007, the go live date is not that far away!
All this to be taken with a grain of piquant salt!!!
Monday, August 13
CESR: advice to the European Commission on non-equities transparency and report on commodity and exotic derivatives
CESR published its advice to the European Commission on non-equities transparency and report on commodity and exotic derivatives. This is a crucial step towards the next evolution of the regulation of European financial markets. I can understand where the CESR is coming from, at end of the day, "transparency is always good". It is when you start hiding things, is where inefficiencies crop up. When inefficiencies crop up, that's where corruption flourishes, power centres form, competition suffers and finally citizens get hurt by making their financial products expensive as well as from an indirect perspective, makes their tax burden greater.
So pushing for transparency while accepting the need for market led initiatives is good and is recommending that these initiatives be studied before regulatory action is imposed. The issue arises because some instruments (such as bonds, commodities and derivatives) do not have liquid markets and therefore prices of these instruments are not what I would call as having executable action or form a "market" price (unlike equity markets). So the Commission posed the following 6 questions to CESR: (No link to this, click on full document to access)
Question 1: Does CESR consider there to be convincing evidence of a market failure with respect to market transparency in any of the instrument markets under review? ANSWER: BROADLY NO.
Question 2: What evidence is there that mandatory pre- or post-trade transparency would mitigate such a market failure? ANSWER: NOT THAT MUCH
Question 3: To what extent can the implementation of MiFID be expected to change this picture? ANSWER: MiFID will improve transparency and investor protection.
Question 4: Can CESR indicate and describe a significant case or category of cases where investor protection has been significantly compromised as a result of a lack of mandatory transparency? ANSWER No
Question 5: Could it be feasible and/or desirable to consider extending mandatory transparency only to certain segments of the market or certain types of investors? ANSWER: slicing is possible but be very careful in the design and implementation, some suggestions are given
Question 6: What criteria does CESR recommend should be applied by the Commission in determining
whether self-regulatory solutions are adequate to address any of the issues above? ANSWER: The CESR suggested the question should more be WHO can deliver solution, and the suggestion is that the market is better placed, check and review and monitor their solutions before deciding on regulatory action.
So, all in all, I think this is a good step forward, very pragmatic indeed.
So pushing for transparency while accepting the need for market led initiatives is good and is recommending that these initiatives be studied before regulatory action is imposed. The issue arises because some instruments (such as bonds, commodities and derivatives) do not have liquid markets and therefore prices of these instruments are not what I would call as having executable action or form a "market" price (unlike equity markets). So the Commission posed the following 6 questions to CESR: (No link to this, click on full document to access)
Question 1: Does CESR consider there to be convincing evidence of a market failure with respect to market transparency in any of the instrument markets under review? ANSWER: BROADLY NO.
Question 2: What evidence is there that mandatory pre- or post-trade transparency would mitigate such a market failure? ANSWER: NOT THAT MUCH
Question 3: To what extent can the implementation of MiFID be expected to change this picture? ANSWER: MiFID will improve transparency and investor protection.
Question 4: Can CESR indicate and describe a significant case or category of cases where investor protection has been significantly compromised as a result of a lack of mandatory transparency? ANSWER No
Question 5: Could it be feasible and/or desirable to consider extending mandatory transparency only to certain segments of the market or certain types of investors? ANSWER: slicing is possible but be very careful in the design and implementation, some suggestions are given
Question 6: What criteria does CESR recommend should be applied by the Commission in determining
whether self-regulatory solutions are adequate to address any of the issues above? ANSWER: The CESR suggested the question should more be WHO can deliver solution, and the suggestion is that the market is better placed, check and review and monitor their solutions before deciding on regulatory action.
So, all in all, I think this is a good step forward, very pragmatic indeed.
Subscribe to:
Posts (Atom)