All Things Are Just Dandy in the Eurozone

The tone at this year's Esma conference was a little too positive when it came to Mifid II says John.


Despite having been a part of the Waters lineup for the best part of three years now, almost long enough to be considered part of the furniture by journalistic turnover standards, there is much about this industry that I’m still new to.

One such example is the annual conference hosted by the European Securities and Markets Authority (Esma), an event that I attended during mid-October while the majority of my colleagues, counterparts and peers were getting into the stride of fintech hype extravaganza week, aka Sibos.

I wasn’t quite sure what to expect from the day’s panel discussions and speakers, but one thing that I would have bet on was that the dominant topic would be the arrival of Mifid II in just two months’ time. What was surprising, however, was just how upbeat everyone seemed to be about the incoming rule changes.

From the Esma top brass to representatives from exchanges, banks and central counterparties, almost everyone who spoke into a microphone at the day-long event was singing from the same hymn sheet: Mifid II is going to be a hugely positive change and presents the industry with a glut of opportunities to create an almost Utopian financial market where nothing could possibly go wrong.

Opportunities Everywhere

If my tone makes me sound somewhat cynical, that’s because I am. The word “opportunity” cropped up so many times throughout the day that I began to get a touch of Stockholm Syndrome. What wouldn’t be possible once trading flows are pushed toward lit venues in the interest of transparency? Best execution requirements will surely mean no investor ever misses out on the greatest possible return again, right?

We at Waters have heard time and again that Mifid II has been a monumental challenge to prepare for, mostly from those on the asset management side that don’t have the resources that the larger banking institutions have at their disposal. Even now, with just two months left to go until the regulation comes into force, there have been those lobbying for further delays with arguments that the sheer scope of the rule changes mean that not all systems will be in place and ready to go once the deadline passes.

But the cry of the buy side was, perhaps not strangely, conspicuous by its absence throughout the day’s discussions. When it came to anything Mifid II-related, an asset management representative was not to be found to offer that anguished voice of dissent we have been hearing on anything touching on regulation over the past 12 months. 

It’s understandable that Esma would want to put the best possible angle on regulatory matters with so little time left until Mifid II and the twisted, shadowy monster of Brexit lurking on the periphery. Indeed, Brexit was the other chief discussion topic of the day, with a sense of rueful acceptance pervading the conference, with attendees in agreement that it would be best for the whole thing to just be dealt with as quickly as possible, please.

Mentions of ongoing issues surrounding systematic internalizers, the double-volume caps on dark pools, and Legal Entity Identifiers (LEIs) were acknowledged, but not mined to any great depth. Data problems were also touched upon but largely glossed over in favor of returning to the seemingly endless number of opportunities that the sector would be presented with once a more transparent marketplace comes into view.

But let’s hold off on the Mifid II back-slapping and self-congratulation for a while longer. While the Directive does need to be adopted, implemented and taken forward with an approach that prioritizes positive outcomes over the challenges, it’s not going to fix everything overnight, or even in a matter of months.

The industry won’t be able to begin assessing the true impact of Mifid II until the data starts coming through for analysis some time toward the end of next year. Regulation is a reactionary force most of the time, and given the global events of the past 12 months alone, who knows what we’ll be contending with once the new rules have had time to settle? 

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