|
|
There is both promise and peril ahead. Forcing more derivative and bond trades on to fully transparent venues, for example, or forcing asset managers to make their fee structures more explicit, should in principle work to the benefit of customers. The big worries are twofold: first, that the burden of compliance will be so great that it gives yet another advantage to the biggest firms, which can spread the cost of Mifid across more transactions. Second, that by the time the rules have been fully implemented, markets and technology will have rendered them obsolete. Such was the case with Mifid I, with its emphasis on equity trading. It came into effect in 2007, just before fixed-income derivatives revealed the true weaknesses in the system.
There is already evidence that implementation will be slow. Many firms (especially small ones) have said they are not ready for all the changes. European regulators have offered selective grace periods in response. Many European member states have been slow to transmit the regulations into local law. There are already problems about how the rules will interact with US regulations. Some trading venues are charging more for price data ahead of implementation, the opposite of the intended effect. The transition was never going to be costless or quick, however. And the simple fact is that it is difficult to predict how effective the rules will be: they will govern a system of many interacting parts, and the changes will be made while the system is running at full tilt. What we can say now is what will constitute success. If Mifid II has worked, the markets for financial instruments will — in time — be more competitive, not just more transparent. If over the coming years fees and commissions fall and the number of competitors increases, especially in previously opaque fixed-income and derivative markets, it will be a good clue that the new rules have done their work. Deepening oligopoly will be an equally clear indication of failure.
Full article on Financial Times (subscription required)