Buy-side traders could face higher fees from sell-side institutions as the costs of complying with European regulation MiFID II puts pressures on profit margins.
MiFID II’s trade and transaction reporting rules require banks to submit vast amounts of data to European regulators, which could also force the sell-side to “shoulder a great deal of business,” according to a recent report.
Financial consultancy GreySpark authored the report, which explores the effects of MiFID II costs for the sell-side.
The report explained that increased costs “will inevitably erode the profitably of financial markets trading businesses”, forcing banks to charge buy-side clients higher fees.
Sell-side institutions will have to “confront a difficult choice: continue to compete with their peers for client market share, or reduce the amount of trading services they provide in an attempt to better serve their core client base.”
Trade execution profits will be most impacted by the costs of implementing MiFID II regulation.
GreySpark’s EU risk and regulations practice manager, Giles Broxis, suggested, “both buy-side firms and sell-side banks must now look at more strategic solutions to deliver system and process efficiencies to manage these regulatory costs.”
Broxis added: “In a regulatory environment that remains uncertain, banks must now work out how to maximise the cost-savings benefits they can derive from the investments driven by regulatory compliance if they are to offset these challenges.”