The More Things Change

Regulators may be about to call the industry's bluff on Mifid II time pressures


There’s a certain degree of repetition when it comes to covering issues in financial technology, and not in terms of themes—although there is absolutely an element of that, and yes, cloud, I’m talking about you—but certainly in terms of human reactions to market events.

Nowhere has this been more pronounced than in post-crisis regulation. Since the crisis, I have written hundreds of thousands of words about how banks, buy-side firms, and even regulators are unprepared to comply with this regulation or that directive. Some vendors and consultancies, who shall remain nameless, have made something of a sport of this, rolling out survey after survey for each regulation as it nears its implementation date.

Sometimes this is understandable. Reporting under the European Market Infrastructure Regulation, as an example, was—and still is—an absolute mess of a regulatory action. Nobody sensible whom I speak with seems to think it has value beyond academic curiosity, and there is often a curious mismatch in tone between regulators saying in speeches that the data is great, and they’re doing loads with it, then saying in their annual reports that they’re focusing on making it better.

Which one is it?

There is even some sympathy for capital requirements regulations on hand, particularly for ill-advised constructions within those rules, such as treating initial margin under the leverage ratio as being additive to risk and thus attracting a charge. Anyone with half a brain can understand why that might be seen as slightly unfair.

However, there are other areas where there is less sympathy available. The review of the Markets in Financial Instruments Directive (Mifid II) is one. It’s hard to listen to complaints about not having enough time to comply when the directive and the regulation have already been postponed by a year—due to concerns about there not being enough time.

Likewise, while I am sympathetic to complaints stemming from the fact that certain details, particularly around reporting and post-trade transparency, have been left until six months before to get finalized, I do have a feeling that this is being used by many firms who have left this until the last minute, or who have seen the delay as a chance to kick the can down the road.

Actually, it’s not just a feeling. People in senior technology positions on the buy and sell sides have categorically told me that’s the case.

I’m not alone in this, either—the UK Financial Conduct Authority, speaking at various Waters events this year, has gone from being empathetic toward the plight of financial institutions, to cautiously understanding, to flat-out concerned. That’s not good.

What is certainly clear is that, with the political climate as it is, there won’t be a great deal of leniency come January 2018 for those firms in London or elsewhere who are not ready to comply, and haven’t made efforts to do so.

One person familiar with the thinking of European regulators also said to me last week that banks or buy-side firms hoping to play regulators in Dublin, Frankfurt, Amsterdam or Paris off against each other in some bizarre battle of who can be more lenient, in an effort to attract relocation post-Brexit, are living in a fantasy world.

The word from the top is clear, and the clock is approaching five minutes to midnight. Mifid, as with winter, is coming.

This week on Buy-Side Technology:

  • Libor gets the chop, and hardly anyone is surprised. Regulators have been talking about getting rid of the scandal-addled benchmark for some time, even after some genuinely strong efforts by the Intercontinental Exchange to reform it.
  • There’s been a lot written about digital currencies this week. First, we have the possible hard fork come August 1, when people could quite literally just lose their money (so much for the inviolability of the blockchain, eh?). Then the Securities and Exchange Commission flexed its muscles over the DAO, saying the initial coin offerings may constitute investments and thus fall under securities laws, because…well, they’re investments, aren’t they? This doesn’t seem to have reached the office of Floyd Mayweather.
  • Finally, I wrote a big piece on digital currencies and how they’re loosely regulated, and therefore likely unsuitable to be a bona fide asset class anytime soon. Let me tell you, one of the great joys in life is writing a piece like this, then having the SEC release some regulatory initiatives about it at 4:30PM the night before it goes live.
  • It’s not all bitcoin, though! Someone released another research unbundling platform/service, this time equities heavy hitter Liquidnet and technology heavy hitter FactSet, and…I don’t know. Everyone is doing it, join the party, there are six months left before everyone stops taking research from all but the big bulge brackets and maybe a few boutiques.
  • LedgerX also received its long-awaited approval to operate a clearinghouse from the Commodity Futures Trading Commission. Proving that, actually, this week has been all about bitcoin.
  • Finally, Nasdaq made a key purchase with its acquisition of Sybenetix, with which it plans to do a number of cool things in surveillance with machine learning, artificial intelligence and the like. Watch that space.

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