A delegation of UK-based heads of trading from institutional investment firms met with representatives of the European Commission (EC) on 9 March to raise concerns over a number of proposals to reform MiFID contained in the EC’s consultation document issued last December.
Several of the buy-side firms represented had previously sent written submissions to the consultation and participated in responses by trade bodies such as the Investment Management Association. But the heads of trading decided to hold face-to-face meetings with officials in Brussels to ensure that the views of investment institutions and end-investors were fully understood.
“It’s clear that the Commission has been the subject of considerable lobbying efforts on its MiFID proposals. Our aim was to provide an impartial view,” said Kristian West, head of equity trading at J.P. Morgan Asset Management in London.
Primary among the concerns voiced by the heads of trading were proposed changes to MiFID relating to permissible trade reporting delays, broker crossing networks, high-frequency trading and the introduction of a consolidated post-trade market feed.
Proposals to reduce delays permitted by MiFID's existing reporting regime were first made by the Committee of European Securities Regulators (CESR) in technical advice issued ahead of the European Commission's review of the directive's impact. CESR, which has since been superseded by the European Securities and Markets Authority, proposed shortening permitted delays from three days to no later than the end of the trading day. Research from Credit Suisse published in Q4 2010 found that market impact costs could increase by 192%, to 35 basis points from 12 bps if CESR's proposal was implemented.
According to West, the heads of trading made their case for reconsidering the planned change to trade reporting in terms of the negative impact on individual savers and the wider economy.
“We believe this will have a detrimental effect on liquidity, particularly in the SME sector. A subsequent rise in the cost of accessing SME liquidity will not only limit the capital available to growth companies in Europe but it would also ultimately reduce pension returns. We are submitting evidence in support of this and hope the commission wishes to continue the dialogue we have opened up,” he said.
At the FIX Protocol EMEA trading conference held in London on 1 March, Eleanor Jenkins, head of market structure and liquidity strategy, Morgan Stanley, argued that planned changes to the existing delayed reporting regime would yield negligible transparency benefits while being “counter-productive” to market efficiency. A number of market participants have argued instead for the reintroduction of worked principle agreements whereby brokers formerly reported arrangements to the London Stock Exchange when using their own balance sheet to support a large buy or sell order for a buy-side client.