Bloomberg Trading SolutionsSeptember 29, 2015
This article is by [tooltip id=”SteveNiven” title=”Steve Niven” background=”black”]Steve Niven is the EMEA Head of Compliance, Bloomberg. [/tooltip], [tooltip id=”Chris McDonald” title=”Chris McDonald” background=”black”]Christopher McDonald is theRegulation and Compliance Product Manager for Bloomberg TOMS. Chris leads the design, development and delivery of the regulatory compliance capabilities incorporated into Bloomberg’s sell-side fixed income order management system, Bloomberg TOMS. Prior to joining Bloomberg in 2011, Chris managed middle office operations supporting credit, exotic and interest rate derivatives trading desks in London and New York for JP Morgan[/tooltip] and [tooltip id=”GaryStone” title=”Gary Stone” background=”black”]Gary Stone is the Chief Strategy Officer for <a href=”http://www.bloomberg.com/trading-solutions/”><strong>Bloomberg Trading Solutions</strong></a> and is a recognized expert onU.S. equity market structurecurrently serving a two year term on the U.S. Securities and Exchange Commission’s <a href=”https://www.sec.gov/spotlight/equity-market-structure-advisory-committee.shtml”>Equity Market Structure Advisory Committee</a>.[/tooltip].
[bps_tooltip background=”black” id=”SteveNiven”]Steve Niven is the EMEA Head of Compliance, Bloomberg.[/bps_tooltip]
MiFID I harmonized the European marketplace by creating EU-wide passport concepts. It also provided regulators with reports that enabled them to assess how the markets worked. Nearly eight years after implementation of MiFID I, MiFID II is about to arrive on our door step. Guidance will probably be delivered in phases so that the organizations impacted by the regulation can start to put processes and procedures in place to comply with the mandate by the January 2017 deadline, which is rapidly approaching.
MiFID II is a massive undertaking centered generally around the obligations that “investment companies” have toward “investor protection.” Investment companies is the key phrase here.
The use of “investment companies” in many of MiFID II’s articles results in the practical application of the technical standards applying equally to the buy and sell side. Regulation was traditionally bifurcated by the buy side and sell side roles. The new guidelines essentially shift responsibility from a role-based (institutional buy side / sell side) to an activity-basis (what you are doing/how you are doing it).
Photographer: Konstantinos Tsakalidis/Bloomberg
In our opinion, most of the regulation is being done in the name of end “investor protection” – the individual. And, because of that, it is effectively creating a new framework for regulation based on three principle pillars:
- Best execution, information to clients, and surveillance
- Limits, monitoring and controls
- Regulatory reporting and Transparency
MiFID II is creating a new regulatory eco-system. And, because MiFID II is being copied in some regions and has extra-territorial effects in other, almost all new regulation is now standing on one of these principle pillars.
We will examine these three pillars in more detail in future posts.
Certainly! The article discusses the impending arrival of MiFID II (Markets in Financial Instruments Directive II) and its significant impact on the European financial marketplace. As an enthusiast with in-depth expertise in regulatory compliance and financial markets, let's break down the concepts touched upon in the article:
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MiFID I and MiFID II: The Markets in Financial Instruments Directive I aimed to harmonize the European financial markets by introducing passporting and regulatory reporting for market assessment. MiFID II is its successor, set to expand on these regulations, primarily focusing on investor protection through enhanced compliance measures.
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Investment Companies and Obligations: MiFID II revolves around the obligations that investment companies have towards investor protection. The term "investment companies" is pivotal here, as the technical standards of MiFID II apply equally to both buy and sell sides, shifting from a role-based to an activity-based approach.
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Three Pillars of MiFID II:
- Best Execution: Ensuring the best possible execution for client trades, emphasizing transparency and fairness.
- Information to Clients: Providing comprehensive information to clients, ensuring they have a clear understanding of their investments.
- Surveillance, Limits, Monitoring, and Controls: Implementing robust systems for monitoring and controlling market activities to prevent misconduct.
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Regulatory Reporting and Transparency: MiFID II aims to establish a new regulatory framework emphasizing transparency through enhanced reporting requirements. The regulation seeks to create a more comprehensive and accountable financial ecosystem.
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Global Impact and Extra-Territorial Effects: MiFID II's influence extends beyond Europe, with its principles being adopted or influencing regulations worldwide. Its extra-territorial effects mean that many global regulations are aligned or influenced by MiFID II's pillars.
The article provides a glimpse into the evolving landscape of financial regulation, emphasizing the growing importance of investor protection and transparency in global financial markets. MiFID II stands as a cornerstone in shaping these regulatory landscapes, influencing how financial institutions operate and comply with standards to ensure a fair and secure market environment.
