The Week That Was: 15-19 January

John casts a weary eye over some of the week’s news stories

It’s all gone a bit quiet on the MiFID II front this week. Where are the market crashes, the imploding terminals, the executives running through plate-glass windows while on fire and waving their hands around in an absurdly comic manner? Or was that Y2K?

The reality of MiFID II so far has been, unfortunately for media hacks, pretty mundane. While the teething problems of last week will probably take some time to both come to light and then settle down, trading desks are just getting on with the job in front of them.

Several heads of trading desks spoke to Hayley McDowell earlier this week about their initial impressions of the new regime and the predominant sentiment appears to be that everything is pretty much business as usual.

That’s not to say that the regulation’s effects are not being felt. We’ve already seen one of the first casualties of the new regime, as US broker Evercore ISI has reportedly shuttered its European trading activities and said goodbye to head of trading Daryl Bowden, just two weeks into MiFID II’s lifespan.

While Evercore declined to comment or confirm the story, the firm’s silence on this is somewhat telling. Smaller firms have been expected to struggle with the new rules, especially concerning the unbundling of investment research and execution fees, and more stringent requirements around best execution.

It will be interesting to see if other US or Asia-based firms begin to constrict their European trading activities as a result of the regulation, although the most likely outcome will be further M& activity throughout the sector.

Speaking of which, 2017 was a huge year for mergers and acquisitions, because who doesn’t love a good spending spree to make themselves feel a bit better when the going gets tough?

The industry’s big fish have picked up where they left off last year by continuing to gobble up the smaller fry. This week saw two deals announced, as Franklin Templeton snapped up Scottish firm Edinburgh Partners, while the HFT space continues to eat itself as Hudson River announced atakeover of rival Sun Trading.

It’s a safe bet that this trend will continue this year as MiFID II continues to squeeze operating and compliance costs, although it’s hard to point to any obvious examples of gargantuan deals occurring this year in a similar vein to the marriages between Aberdeen AM and Standard Life, or Janus Capital and Henderson Group that we saw in 2017.

On the subject of spending, Goldman Sachs, at the vanguard of a cadre of sell- and buy-side institutions have pumped $38 million into research platform provider Visible Alpha.

The New York-based vendor has previously attracted investment from the likes of Citi and Bank of America, so it’s not exactly surprising to see more sell-side firms throwing cash at technologies that are focusing on one of the trickiest areas of MiFID II for them.

No doubt there will be similar vendors in the research space batting their eyelids at possible suitors in the hopes of receiving similar windfalls, as the bulge-bracket banks and brokers seek a solution to new rules that have put unprecedented pressure on the way investment research is produced, consumed and analysed. 

It’s going to be fascinating to see how this particular space will adapt under MiFID II and one that we at The TRADE will be keeping a close eye on.