Buy-side looks for FCA support on MiFID II – The TRADE Poll

Stronger input into MiFID II should be a priority for the UK's new regulatory body, the Financial Conduct Authority,'s April poll has found.

Stronger input into MiFID II should be a priority for the UK's new regulatory body, the Financial Conduct Authority (FCA),'s April poll has found.

Asked what the FCA's buy-side priorities should be, 43.14% backed support on MiFID reforms, in particular on dark pool rules and the development of a European consolidated tape. The second-highest scoring option, with 29.41%, was ending the City's 'light touch' reputation, followed by zero tolerance on unbundling of broker services, with 27.45%.

The results demonstrate the significance of the rules being finalised in MiFID II and suggests current efforts to represent buy-side interests are viewed as inadequate.

PJ Di Giammarino, CEO of European regulation advisor JWG, believes UK buy-side firms clearly want more representation in Brussels. 

"I thought market participants would be more concerned about other regulatory issues at the moment, rather than MiFID II, but this could signify that there is a lack of integration between regulators and the industry on MiFID II's development," Di Giammarino said.

"The buy-side want more clarity on the technical elements of impending regulation and the consolidated tape is a great example of the industry calling for a specific outcome, but not having adequate support to develop a solution," Di Giammarino said.

MiFID II is expected to enter the trialogue stage in coming months, where the Parliament and Council of the European Union negotiate a final text, with input from the Commission. Final implementation is set for 2015. 

The FCA's MiFID II input will centre upon shaping level two rules through the European Securities and Markets Authority (ESMA) after agreement has been reached at the political level. This will be achieved through the ESMA committees it sits on and by consultation with the UK organisations it regulates.

Key issues relevant to buy-side firms being finalised at the political level include the regulatory framework for organised trading facilities (OTF), which may encompass equities or require broker dark pools to be regulated as multilateral trading facilities or systemic internalisers.

End-client interest

Guy Sears, director, institutional at UK buy-side trade body the Investment Management Association (IMA), said the importance of MiFID II shown in the results was a positive sign for the industry.

"MiFID II could have major impacts on liquidity across Europe, which would be a more significant issue than the few basis points that unbundling would add to trading costs. In that sense, it's encouraging as MiFID reform relates more to end-client interests, while unbundling is more a management concern," Sears said.

The FCA will pursue an initiative to separate buy-side payments for broker services that its predecessor – the Financial Services Authority (FSA) – took up in November. A report released in November by the FSA found only two of 15 firms compliant with rules on unbundling payments for research, execution and corporate access.

Sears added that ending the City's 'light tough' reputation – which scored 28.57% – was surprising.

"I imagine compliance teams would disagree that the City has a 'light touch', although I can understand how clearer rules would benefit asset managers. The nature of market abuse is that when one firm benefits, it's often at the expense of others, such as buy-side firms," he said.

MiFID II will also include a raft of provisions to stem high-frequency trading, such as a minimum resting time, order-to-trade ratios and the abolition of maker-taker venue pricing models.