As we approach 1 month since MIFID II came into play, some of the industry participants give their thoughts:
Raymond Groen int Woud, Head of Product Distribution Oversight at KNEIP, commented:
“Nearly one month after the implementation of MiFID II it is maybe time to draw the first practical conclusions. With the initial delay of the Directive to 03rd January 2018, it was expected that asset managers would have taken the delay of an additional year to be ready in time. However, what we actually observed was a sprint during the last few weeks of 2017 to have the Target Market information and Cost disclosures ready. Whereas the larger platforms and distributors had already communicated that Target Market information was needed prior to the year-end, many funds still saw no data available by early or mid-December.
“Some asset managers, who decided to keep the process in-house, have actually seen a very busy second part of December and a first week of January. Many have identified, later on in the process, the difficulty of different standards and lay-outs and managing the many requests for dissemination to the distribution network and data vendors has proved more challenging than anticipated. In addition, there has been an impact on non-EU domiciled products sold in the EU. Whilst many investors like the cost profile and performance of passive ETF products, for instance, many US based ETFs have not created a Target Market definition causing these products to “be taken off from platforms” and therefore the sales in these products have dropped. Overall I believe we will continue to see teething issues with regards to MiFID II for a short while. While some distributors may have given asset managers the benefit of the doubt, if an asset manager is not able to be compliant with MiFID II they are likely to see a drop in sales as well as regulatory compliance issues.”
Steve Grob, Director of Group Strategy at Fidessa, also comments on what looks different one month on from the MiFID II go-live. He addresses what has changed, who has benefitted/lost out and what we can expect from the next year or so.
What’s changed so far
“As expected, we’ve seen a significant jump in SI reported volumes and a reduction in corresponding OTC flow*. This is because volume previously transacted by brokers directly with their clients now falls under the SI regime. This cannot be broken down any further, however, and so volume that was previously lumped into the OTC category is just now in a similarly opaque bucket called SI. What will be interesting, though, is how the SI volume grows as new electronic market makers enter the SI space.”
“The second anticipated trend that the data supports is a jump in LIS volumes in response to the dark pool caps that were expected in January.”
Who the winners and losers are
“MiFID II is all about transparency which benefits those firms with clear and relevant business models. Right now it seems that firms are adopting an approach either towards scale or specialism and so these firms will be able to demonstrate their relevance more easily. Those without a clear niche may find that the impact of unbundling and direct payments for research may leave them with a lot to prove to their customers. What is clear, however, is that technology is going to be even more important to both the scale and the specialist players in achieving and demonstrating the true value of their execution services.”
What we can expect from the next year
“We’re now getting to the interesting part of the MiFID II regulation as market structure adjusts to meet the new rules. Doubtless this will create new categories of winners amongst those firms who can predict these changes and invest accordingly. We would also expect to see changes in market participants’ behaviour as the best execution obligation is extended to the buy-side and into other asset classes.”