The (Mifid) Game is Afoot

Buy-side firms in the US should begin preparations for European regulation as a matter of urgency.

Jim Rundle
It's not too late to get ready for Mifid II. But it's getting to that point.

One of our longer pieces this week was on the unreliability of surveys, particularly those regarding readiness for regulatory compliance. Unfortunately, when you speak to the firms involved, there is actually a lingering sense of unease.

I’m speaking, of course, about the litany of press releases we receive, variously proclaiming the severity of the upcoming January 3, 2018, apocalypse, when the revised Markets in Financial Instruments Directive (Mifid II) goes into effect.

We’ve both written and talked—on the podcast—extensively about this subject before, not to mention trying to figure out exactly how to cover these types of stories. Mostly, we don’t, because in our view a survey from a vendor showing results that would lead to people buying that vendor’s products should be treated with a pinch of salt, at best.

That doesn’t mean there isn’t a problem, however. In Europe, Mifid compliance has been something of a known quantity for quite some time. Most large buy-side firms I speak to are well on their way to compliance, if only because there is a lingering suspicion that if any of the big boys were to be caught on their back foot, then they may be prime targets for being made an example of.

Among those smaller asset managers, the problem is perhaps more acute, owing to the resources needed to ensure that reporting under Mifid, research unbundling, and all that good stuff is in place.

In the United States, the picture is less clear. I’ve had numerous discussions with people over the past few weeks that paint a picture of what I term sudden awareness. As in, US firms are realizing that Europe’s extraordinarily complicated package of regulatory reform may have a greater impact on them than they thought, and that it may stretch beyond having to pay for some research.

It’s somewhat alarming to hear that these firms are only now—mere months away from January—beginning to try to wrap their arms around what Mifid will mean for them, and finally understanding that just pulling back European operations may not be sufficient.

What’s even more alarming is that regulators have made it quite clear that while they may not be expecting 100 percent compliance on day one, at the very least they expect significant efforts to be made towards that.

Then, of course, is the creeping realization that the timeframe is shorter than expected, given the traditional code freeze in December around the holidays and, in some cases, weeks before that.

As such, given that the hot summer days in New York, Boston and elsewhere in the US are beginning to cool into the fall, it’s becoming clear that this Christmas may not be a very merry one for asset managers affected by Mifid. Which, ultimately, may be the vast majority.

As we’ve said numerous times before, this is the big one, ladies and gentlemen. There won’t be another year’s delay, and the New Year may bring nasty surprises for those who don’t put the work in now. It’s time to get moving.

Then, perhaps, we can talk about the next big things on the horizon, like the General Data Protection Regulation or the Fundamental Review of the Trading Book. Emphasis on the ‘fun.’

This week on Buy-Side Technology:

  • Surveys are often silly. But they can be useful when they get specific, as my colleague John Brazier explores.
  • Machine learning is at risk of being pretty well-hyped, so Waters prepared a list of actual, real-life use cases this month for your consideration. Nasdaq also incorporated it into trade surveillance on its Nordic markets, which you can read about here, and listen to here.
  • On the subject of Mifid II and US asset managers, IMP has teamed up with UnaVista for Mifir reporting. If you don’t know what that is, I refer you to my above comments.
  • In people moves, the London Stock Exchange’s Mack Gill, formerly CEO of its vendor arm, MillenniumIT, joined Torstone in the UK.
  • Finally, 20 years after the last time the US shortened its settlement cycle, it did so again on September 5. You can read our fairly exhaustive coverage on the subject by searching for it on the site, or by following these links to the account of how the industry got to this point, whether blockchain could facilitate T+0 settlement, and the day itself. Look out for more in the weeks to come.
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