Bank of America Merrill Lynch (BofA) has broken ranks with its US contemporaries with the EU’s revised Markets in Financial Instruments Directive (MiFID II) on the horizon, writes the
Financial Times’ Peter Smith and Robin Wigglesworth. The bank’s research unit will be a registered investment adviser after filing with the Securities and Exchange Commission (SEC).
MiFID II regulations conflict with some local US regulations. Abigail Johnson, Fidelity Investments’ chairman and chief executive, said in a speech in Washington on Tuesday 24 October 2017 that MiFID II is “a case study of the havoc caused by inconsistent rules across different jurisdictions”.
US banks had been hoping for ‘no action relief’ – permission for research costs to be passed on separately from trading and execution charges without the need to be a registered investment adviser – from the SEC.
The article quotes an unnamed London-based executive at a large European asset manager, who says that without no action relief, “‘75% of the world’s analysts would be off limits’ to European asset managers”.
BofA’s decision is not without complications though. Karen Barr, head of the Investment Adviser Association (IAA), called the process of complying with investment adviser requirements “significant”.
A lot of the big banks already have an affiliate registered as an investment adviser. But it’s not the registration itself that is an issue, it’s applying a fiduciary duty to new activities.
She urged IAA members to have a “plan B” in case no action relief was not forthcoming.
Financial Times articleA cross-Atlantic deal The US Commodity Futures Trading Commission (CFTC) and the European Commission (EC) have reached a preliminary agreement to “prevent a rupture” in the global derivative market, worth $483tn, when MiFID II comes into effect, according to a
Bloomberg report by Alexander Weber and Ben Bain.
The CFTC and the EC aim to “ensure that counterparties on both sides of the Atlantic can comply with the trading obligation in MiFID II”.
The CFTC also announced an agreement with the EU on “mutual recognition of their margin rules for over-the-counter derivatives”.
"It will ensure that our global markets are not stifled by fragmentation, inefficiencies and higher costs"J. Christopher Giancarlo, chairman of the CFTC, is quoted: “It will ensure that our global markets are not stifled by fragmentation, inefficiencies and higher costs. Indeed, these measures are critical to maintaining the integrity of our swaps markets.”
The EC has been under pressure by financial services sector groups to move the deadline for swap-trading rules under MiFID II, partly due to a lack of agreement with the US on how interest rate and credit default swaps would be handled.
The CFTC/EC agreement isn’t a panacea though. More agreements of a similar nature must be made before the 3 January 2018 MiFID II deadline, the European Securities and Markets Authority says.
Bloomberg article
MiFID II ‘down under’Gary Stone, a market structure and regulatory policy strategist at Bloomberg, writes in
InvestorDaily that Australian companies that operate branches or subsidiaries in Europe, or transact or trade financial instruments with European organisations, will feel the effects.
The changes will impact many areas, such as accessing and paying for research, processing “know your customer (KYC), data management and record-keeping, and best execution”.
Stone advises that the areas of concern for Australian firms include “data transfer, storage, connectivity and integration”. The EU should already have “identified data sources they need to capture, and where the data resides for transaction reporting and best execution”.
Non-EU based companies should be expecting requests from their EU-based contemporaries. These will ask for provisions to be to put in place for various practices. These could include “terms of business, recordings of the trading desks in case of disputes or regulatory inquiries, execution policy, and paperwork associated with research provisions and conduct requirements,” he writes.
To avoid an administrative burden, Stone advises to put “the right support and solutions … in place to ensure the document exchange is done in a timely and accurate manner”.
The clock is ticking, so Stone cautions against getting “caught in the scrum” in the last quarter of 2017.
MiFID II is still a puzzle to many in the financial services sector. The preparations made leading up to its implementation could shape the winners and losers of the future. No wonder its significance is growing in magnitude.
InvestorDaily article
Seen a blog, news story or discussion online that you think might interest CISI members? Email jake.matthews@wardour.co.uk.