The Markets in Financial Instruments Directive (MiFID), which was designed to create a single market for financial instruments, goes live today, forcing buy- and sell-side institutions to demonstrate compliance and potentially transforming the European securities trading landscape.
However, many market participants are not ready for MiFID. A recent research report undertaken by think-tank for EU-driven IT change in the financial services industry found that 64 per cent of investment firms have significant work to do to be compliant with MiFID's record- keeping requirements.
One reason for this lack of readiness is a lack of clarity in the regulation. The details of Article 21, the so-called 'best execution provision', have been unclear to many since they were first drafted. According to Bob Giffords, an independent banking technology analyst, Article 21, which forces firms to demonstrate to clients adherence to a 'best execution' policy, is fundamentally flawed because it does not allow for the sorts of risk-taking that is needed to execute a trade in the best interests of the client.
Today marks the end of the concentration rule which granted Europe's national exchanges special privileges regarding trade order flow, and is seen by some as the inevitable trigger of future market fragmentation, proliferation of dark liquidity pools, and increased competition among all market participants.
Andrew Howieson, partner, TABB Group, for example, said during a Liquidnet breakfast Roundtable on Wednesday: "Those who say change will be slow to come may not be correct. I think we will see significant change quite quickly."
But other firms are not convinced that change will come about quickly. Atos Origin, an IT services company, claimed that a 'wait- and-see' attitude prevails among European financial firms in a research report published last week. According to the research, many firms are deferring investments in new smart order routing technology because they are unsure at this stage whether liquidity in the market will fragment as predicted.