As the European Commission (EC) gathers evidence for its MiFID review, a survey by The TRADE has found that 68% of European buy-side heads consider their clients to be worse off since its implementation, while only 16% think the directive has improved their ability to attain best execution.
In a poll of 19 heads of trading, overwhelmingly from large long-only investment management firms, most suggested the unintended consequences of the directive had so far outweighed the proposed benefits. Some argued that the broker community had been the prime beneficiaries so far.
“MiFID has enabled the sell-side to reduce their cost base with the reduction of exchange fees, which were much higher in Europe than in the US,” said one buy-side head.
Liquidity fragmentation was felt by many to have hindered best execution due to the lack of a standardised data source for pre- and post-trade data and inadequate tools to re-aggregate fragmented liquidity. Survey respondents also noted problems stemming from a lack of comprehensive integration of clearing and settlement infrastructures and the cost of installing new technology to handle fragmentation.
The majority of buy-side traders agreed that a mandated, consolidated Europe-wide best bid and offer price source should top the EC’s list of priorities when reviewing MiFID’s impact, a process that is scheduled for completion in 2010.
“MiFID has emphasised the gap between small and large buy-side firms,” says Bertil Meijer, head of equity trading at APG Investments. “Pre-trade, I want a fair assumption of what’s feasible, but if you have no way to connect to all execution venues and get their data, you will not get the full scope of immediately available liquidity.”
Other changes to the legislation deemed important by respondents included the extension of MiFID to other asset classes, particularly fixed income, and a more simplified definition of best execution than the one current included in MiFID to enhance protection of the interests of end-investors.
Further results and in-depth analysis of The TRADE’s survey will be published in the forthcoming Q3 2009 issue at the end of September.