Getting to grips with regulation and compliance is top of the agenda for the buy-side in 2014, according to findings from theTRADEnews.com’s December poll.
With many new regulatory regimes set to be implemented this year, including aspects of the Dodd-Frank Act and the European market infrastructure regulation (EMIR), and other regulations expected to be finalised, buy-siders are facing a significant compliance burden.
TheTRADEnews.com’s poll found 49% of respondents believe dealing with regulatory and compliance issues will be biggest priority for buy-siders in 2014.
“There are a lot of different regulations at different stages of development that asset managers need to deal with this year,” said Richard Metcalfe, director of regulatory affairs, for institutions and capital markets, at UK trade body the Investment Management Association. “Some, such as clearing and trade reporting, have already been pinned down, while there are other evolving, such as regulations on trading obligations and capital regimes which asset managers also need to keep an eye on.”
Year of implementation
Regulation has been a major theme for several years now, with the financial crisis of 2008 prompting major regulatory reviews globally. However, for many firms, 2014 will mark the first stage of implementation of rules which have taken a long time to formulate, according to Alex McDonald, CEO of the Wholesale Markets Brokers’ Association (WMBA).
“This is very much a year of implementation and the buy-side will shortly be having to do things they’ve never had to do before, kicking off with their reporting obligations under EMIR in February,” he explained.
WMBA chairman David Clark agreed that implementation was a major milestone, but said firms are also still facing significant uncertainty.
“On the regulatory front, with nothing fully signed off in 2013 everything is very much a work in progress. The buy-side has a lot of big decisions to make but they still don’t have clarity on what the rules will be or how much it will cost.”
Aside from regulation, technology issues are a major concern for firms in 2014, with automation of non-equities trading and upgrading technology each receiving 19% of votes.
Regulation is also playing its part in this area, with many firms needing to upgrade their technology infrastructure in response to new rules.
Tony Freeman, executive director of industry relations at post-trade specialist Omgeo, said the introduction of T+2 settlement in Europe is one such issue.
“Implementation of T+2 in nine markets is scheduled for 6 October, which is not very far away,” warned Freeman. “Buy-side firms that use manual processing are likely to experience challenges in meeting this deadline. If brokers encourage automation, speedier settlement cycles can be achieved and processing costs can be reduced.”
Similarly, the increased automation of non-equity markets is also being driven by regulators, according to Freeman. Examples include swaps, many of which are moving to electronic trading on swap execution facilities in the US as a result of the Dodd-Frank Act, and other asset classes are also being transformed.
“Automation in the fixed income market will continue to catch up to the equity market and we expect it to migrate to T+2 as well,” added Freeman.
“Regulators are looking at making markets like fixed income and FX more transparent, which will result in smaller trade sizes and large trade volumes. This will have implications for trade processing costs.”
Sadly, the pressures of the regulatory environment means the recovery of global equity markets seen in 2013 has become a secondary concern, with just 13% of respondents saying it would be the biggest buy-side priority this year.