Close to 60% of UK buy-side firms say they have seen no reduction in trading costs as a result of MiFID, according to the ninth annual survey by UK trade body the Investment Management Association (IMA).
Just 41% of buy-side respondents to the survey thought that MiFID had brought about a reduction in the cost of trading since its introduction in 2007.
“On the face of it that is surprising,” commented Michael Sparkes, managing consultant at agency broker and transaction cost analysis (TCA) provider, ITG. “The feeling has generally been that on a like-for-like basis competition between venues has been a positive thing. Generally our data suggests that costs have been falling post-MiFID.”
Jane Lowe, director, markets at the IMA, said she was disappointed that any lowering of costs had not been felt by the buy-side.
“When banks pressured the London Stock Exchange to cut costs prior to MiFID, they achieved reductions in fees but they weren't passed on. That does raise questions about how competitive the market is,” she said.
There are a number of factors that may have contributed to increased trading costs since the directive had been put into effect.
Many trading venues were launched after MiFID in competition with the incumbent exchanges, leading to a downward pressure on fees. However the increased range of trade destinations has made tracking prices and trades more difficult for asset managers; in the survey 64% thought market transparency had decreased for UK equities post-MiFID, 53% for European equities.
“There was always perceived to be a risk that the quality of information in the UK market post-MiFID would not improve and that's been the case,” said Lowe. “Without a consolidated tape to provide information on what has occurred around a stock you want to trade, you may be missing something crucial which can be expensive.”
Sparkes added, “Certain costs in the investment process have gone up, for example market data. Clearly if you are drawing data from multiple venues the costs go up and it is a multiple of market data costs in the US.”
According to ITG data the average trade size has fallen by over 50% in the last three years, and that too may have had an effect on costs, as multiple settlement fees are paid to cover lots of smaller trades.
The survey also found that 80% of asset managers were now using TCA, with 42% providing the results to their institutional clients. Almost one quarter, 24%, said they executed 100% of their trades on an execution-only basis, which may include trades sent directly to broker crossing networks and DMA trading.
On derivatives trading, the survey found that 37% of respondents had increased the amount of collateral posted for bilateral trades from the previous year: this was up from 12.5% in the 2009 survey. Just 6% of respondents are using central clearing, all for equity derivatives trades.
The survey was based on responses from 76 IMA member firms that manage a total of £3.3 trillion of assets in the UK.