The buy-side and MiFID II: It’s business as usual

Two weeks after MiFID II was implemented across Europe, The TRADE asks senior buy-siders how much has changed, if anything.

After months of blood, sweat and tears in preparation for one of the industry’s most ground breaking legislative changes, MiFID II’s arrival on 3 January has failed to stunt activity at major asset management firms across Europe.

Speaking to The TRADE, various heads of trading explained the first two weeks since implementation have in fact been business as usual with volumes and day-to-day activities relatively unchanged.

“To be honest, it feels like business as usual,” says Christoph Hock, head of multi-asset trading at Union Investment. “There were not any major disruptions or a drop in facilitation of liquidity across all asset classes in the first two weeks of MiFID II.

“For me, it’s a continuation of recent trends we’ve seen and after running a multi-asset trading desk for two years now, we are running the business the same as we did before. In this context, we don’t need the regulator to tell us what to do,” he adds.

Neil Bond, head of trading at Ardevora, provides some insight into where order flow has migrated to since the closure of broker crossing networks (BCNs). He explains periodic auctions appear to be the current winners of that activity, and the buy-side are approaching systematic internalisers (SIs) with caution.

“Following the closure of BCNs, it seems periodic auctions have absorbed the majority of buy-side to buy-side crossing that was initially going through those venues,” Bond says.

“I believe SIs have absorbed the rest of that activity and internal SIs are probably trying to get as much as possible done. While larger institutions test the waters with external SIs, I don’t think the buy-side will fully embrace external SIs until they have solid data on performance on those venues. They are being used, but not widely across the buy-side.”

For Matthew McLoughlin, head of trading at Liontrust, it has been a similar experience to Hock as he describes the industry’s approach to the new regulatory landscape as being more cautious, but business as usual nonetheless.

He adds volumes were slightly lower in the first week of implementation but he was prepared for this and has since seen activity pick up again. The most noticeable change for McLoughlin has been around reporting requirements but even this so far hasn’t been too much of a burden.

“The only real change in day-to-day operations is ensuring we have our approved publication arrangement (APA) up and open at all times on our desktops in case there are trades we need to report ourselves. Even then, there have so far been only a few cases where we have had to do this,” McLoughlin says.  

MiFID II hit its first major hurdle just one week into the new regime when the European Securities and Markets Authority (ESMA) sensationally delayed the implementation of its dark trading rules, citing lack of complete and sufficient data from trading venues. 

The move, deemed sensible by many market participants and regulatory experts, did not come as a shock to the buy-side who understood the sheer scale of the legislation and the volume of new data would likely cause problems.

“There were always going to be issues with the initial implementation of MiFID II,” McLoughlin says. “That was always going to happen because there is so much involved and so much data needed to be compliant. It was never going to be an easy; it’s an immediate change across the industry. There are always glitches with something like this before everything is ironed out.”

MiFID II has seen evidently more responsibility on the buy-side to ensure systems are working on a day-to-day basis as they should be, and to stay on top of trades that leave reporting obligations with the buy-side.

Nevertheless, Hock at Union Investment concludes: “We will continue implementing new technology, improving our processes and continually training our traders to be more proactive with venues and organisations.”