Woodbrook Group Holdings Inc (WDBG)

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What is Mifid II and how will it affect EU’s financial industry?

https://www.ft.com/content/ae935520-96ff-11e7-b83c-9588e51488a0

Far-reaching rules will have a big impact on everything from banks to brokers. The new rules cover virtually all aspects of trading within the EU

Philip Stafford September 15, 2017

The EU’s ambitious regulatory reforms, known as Mifid II, are poised to transform Europe’s financial industry. Here’s what you need to know.

What is Mifid II?

A revamped version of the Markets in Financial Instruments Directive, or Mifid II, is designed to offer greater protection for investors and inject more transparency into all asset classes: from equities to fixed income, exchange traded funds and foreign exchange.

The extensive piece of legislation, seven years in the making, already has more than 1.4m paragraphs of rules, which will grow as regulators complete the final standards in coming months.

When will it start?

From January 3, one of the EU’s most ambitious, yet controversial, packages of financial reforms will be rolled out.
Why is it being implemented?

The original Mifid was intended to be a cornerstone of EU efforts to create a single financial market for the bloc that could rival the depth and dynamism of the US capital markets.

It mainly sought to end the monopoly of stock exchanges and drive down overall trading costs for investors, and, in its small way, contribute to economic growth.

Its arrival in November 2007 coincided with the onset of the financial crisis and the subsequent years exposed Mifid’s shortcomings in focusing on equities.

The review has more ambitious and structural aims: not only will it update existing rules to keep up with technological developments but will tackle what global policymakers saw as “under-regulated and opaque aspects of the financial system”. That included the vast off-exchange markets, such as derivatives and bonds.

How far-reaching are the new rules?

The new rules cover virtually all aspects of trading within the EU. They reach across the financial services industry, from banks to institutional investors, exchanges, brokers, hedge funds and high-frequency traders.

If a fund manager wants to buy anything that has an underlying product listed in the EU — such as an HSBC option in Hong Kong — it falls into Mifid’s scope, no matter where the asset manager is based. Another instance would involve an EU-based investor purchasing shares in Apple as the US group has a secondary listing in Germany.

But it goes much further. Buried within Mifid is a regulatory desire to push more trading away from the phone and on to electronic venues, which come with better audit and surveillance trails.

That will mean a wave of data, likely to be measured in petabytes. Institutions will have to report more information about most trades immediately, including price and volume.

Trades will be timestamped, to 100 microseconds for some, while information in documents for transaction reporting will stretch to more than 65 fields. It must be stored for a minimum of five years for example, while banks and brokers will be forced to show customers that they were offered the best available price for their trades.