It was heralded as the biggest financial market overhaul since “Big Bang” in 1986 and the first overhaul since the 2007 financial crisis.
But the mouthful directive MiFiD II which runs into 1.7million paragraphs, is five times as long as Tolstoy’s War & Peace and has (so far) cost the European industry $2Bln to comply, might prove just another regulatory empire-building exercise.
Those who offer consultancy services to companies may well pat themselves on the back and claim that the introduction of the second wave MiFiD was a smooth success.
They are not alone, of course. European Union regulators and politicians such as architect Steven Maijoor, chairman of the European Securities and Markets Authority, heralded the changes on Day 1 on Jan 3 as the first time there is a complete view of all financial instruments in the EU.
But they would say that, wouldn’t they? No one wants to admit they might not be right.
Plus, it is one thing to implement changes, and quite another to measure success. That will come with time. And make that a good 36 months before we get too excited.
The sentiment behind MiFiD II is all very noble: To cover, in addition to equities with MiFiD I, other asset classes like debt, foreign exchange, commodities and derivatives. The new rules are supposed to make trading and book-keeping far more transparent and avoid conflicts of interests by ensuring that “freebie” research is purchased instead.
It certainly sounds like the consumer, investor and taxpayer may get a good deal from it.
But the real test will be what it really does to prevent, or swiftly cure a future financial crisis.
Much of the answer in that depends upon when the next crisis lands. That is because not everyone is covered by the new rules from January.
In the eleventh hour the mitigated success of MiFiD II saw Germany’s regulator BaFin give a reprieve from the rules to Eurex, the home of the Bund future. And a few hours later – literally as London markets were opening on January 3, UK regulators gave ICE Futures Europe and the London Metal Exchange a 30-month reprieve from some of the rules, just like Germany had done.
What is more interesting still, is that it means the rules will not be in force even as Britain falls out of the European Union in March 2019.
Volumes since trading returned on January 2 were sharply reduced on account of trades having to settle after rules kicked in on Jan 3.
“Experts” tried to brush this off as low volumes at the start of every year. However, equities volumes were 40% down on the same period in 2017, and volumes at their lowest level since the dot Com bubble in 2001.
The Financial Times managed to cover the issues accurately. Several other media did not.