How the MiFID II policy statement will affect you

A survey last year found more than three-quarters (77 per cent) of pension schemes feel they do not necessarily have the operational infrastructure in place to accommodate change, such as the introduction of new or revised regulations.

In January 2018, MiFID II will come into effect. Designed to increase investor protection, the regulation will introduce new disclosure requirements including with regards to costs and charges, new conditions set for the design and distribution of financial instruments and increased pre and post-trade transparency requirements across equity, equity-like and non-equity instruments.

While there may be a lot of work to do, periods of significant regulatory change often provide the greatest opportunities

The broad scope of this regulation means it touches nearly every facet of the financial industry and its participants. So to avoid skimming over each of these aspects, let’s take a deeper dive into two key areas: the impact this regulation will have on data and the impact it will have on trading.

What are the data challenges?

Regulators are asking for – not just in the context of MiFID II but also of other regulations – increased amounts of data; and in parallel, raising the bar on the analytics they want performed. However, half (50 per cent) of investment organisations say their data capabilities will struggle with such regulatory changes.

Under MiFID II specifically, the level of reporting required is a significant data undertaking, with increased requirements around the ability to show the provenance and quality of data used. The tools needed to facilitate such requirements are becoming increasingly important.

Key points

The demands on investment organisations for data will increase
Trading on regulated venues could increase, with potential knock-on effects for transparency, risk and cost efficiency
Investment companies and pension funds should make sure they have systems in place to comply

In addition, as the industry creeps closer and closer to a fully intra-day model (where you have to complete your trade transaction within the same day before the market closes), the velocity of data is becoming more and more important; and as this greater variety and volume of data continues, it in turn will further push electronic trading versus voice trading.

How will the changes to trading affect you?

MiFID II not only supports a shift to electronic platforms; it is also expected to push more trading onto regulated trading venues.

Both of which will bring benefits for pension schemes; many of whom use electronic trading providers to gain easier and direct access to the global securities markets in order to better diversify their portfolios, enhance returns and keep trading costs down.

Given that transparency, risk management, the hunt for yield, and improving operation and cost efficiencies are top of the priority list for pensions, the positive impact MiFID II is likely to have on trading is a key element for schemes to be aware of, and be reassured by.

There are certain MiFID II requirements that have caused substantial discussion, and in some cases concern, among market participants, which relate not only to the impact they might have on trading, but also to achieving compliance.

Why MiFID II could be a good thing for pensions

From the blog: Most rules handed down from Europe are treated with distrust, and the forthcoming markets in financial instruments directive – or MiFID II – legislation is no exception.

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While the changes introduced by MiFID II are a welcome move for modern day trading, venues and the institutions that use them will need to ensure they have effective safeguards and systems in place to remain compliant and controlled, while maintaining strong governance.