Associations representing investment firms, banks, regulated markets and investors have voiced concerns about the implementation of MiFID’s best execution provisions and the level of competition between trading venues in response to a European Commission questionnaire.
On 1 July this year, the Commission issued a call for evidence to 25 European industry association to assess how effectively MiFID has been transposed into local law and implemented across Europe. Twenty firms responded, including Scottish asset manager Baillie Gifford, the UK Investment Management Association and the European Fund and Asset Management Association. The Commission published a summary of the responses this week.
According to the summary, respondents were divided over whether market players were complying with the best execution obligations detailed under Article 21 of MiFID. Some respondents reported “shortfalls” in the execution policies published by some sell-side investment firms, arguing that they were “vague or incomplete”.
Further impediments to best execution, according to some respondents, were caused by post-trade transparency problems, such as delayed and double-reporting of trades. Survey respondents felt this could affect best execution by “preventing a full comparison of prices offered by different venues.” Others said the post-trade data market would need more time to adjust to the new multi-venue environment.
Competition between trading venues was also highlighted as a problem. Several respondents said that, because of the lack of links between trading and post-trade infrastructures, firms’ choice of post-trade systems is still limited. The respondents argued that the Commission’s European Code of Conduct for Clearing and Settlement, designed to foster more interoperability between Europe’s post-trade service, “has not yet fulfilled its purpose.”
Respondents also asserted that certain multilateral trading facilities (MTFs) are encountering difficulties in securing access to clearing and settlement and central counterparty services, effectively restricting their ability to compete with venues that have better access.
Furthermore, one respondent claimed that not all banks acting as systematic internalisers have registered as such. The respondent added that even registered institutions “did not always fully comply with pre-trade transparency rules.” As such, reporting by these firms would sometimes be “delayed or lacking in substance”.
The EC survey was intended to assess the transposition and implementation of MiFID rather than the effectiveness of the directive itself. This will be addressed in a new review that the Commission intends to carry out in 2010. But the Commission said that a number of issues brought up in the survey – in particular the framework of transaction reporting and the access to central counterparty and clearing and settlement facilities – deserved closer attention in the 2010 review.
Separately, the Committee of European Securities Regulators (CESR) has started assessing the impact and functioning of MiFID this week by issuing two calls for evidence to market participants. The first asks for details of the impact of MiFID on the functioning of secondary markets. Questions will focus on market transparency and integrity, regulated markets, MTFs and systematic internalisers. It will be completed by May 2009.
The second call for evidence seeks the market’s views the scope of MiFID’s transaction reporting obligation. In particular, the review will try to establish what constitutes an execution for reporting purposes. Through the findings, CESR aims to converge the current practices of its members. The committee expects to complete this review by the end of 2009.