MiFID Reforms To Hit Smaller Banks, Exchanges Hardest
MiFID (the Markets in Financial Instruments Directive), a sweeping regulatory reform that aims to create a common market for share, commodities and derivatives trading across Europe goes into effect today.
Described as another “Big Bang” similar to the widespread reforms of London’s financial markets two decades ago, MiFID has not yet captured the pubic imagination. While it may not be quite a scary as a triffid, MiFID is expected to have significant impact on both financial exchanges and institutions.
In The spectre of Mifid haunts mid-tier banks The FT quotes a study by the Tower Group claiming that the beneficiaries if MiFID will be a handful of top-tier global banks:
The world’s 300 top-tier banks currently represent 80 per cent of Europe’s financial services by volume. By 2011 volume will be concentrated in the hands of 10 banks.
The massive investment in technology required in order to demonstrate that the best possible trade execution was achieved will widen the chasm between larger and smaller players, Tower says.
Similarly, consultants at Oliver Wyman note that for banks of all sizes, the legislation has a downside. The group notes that if MiFID actually achieves its objectives of promoting competition and customer protection, “this generally appears to be bad news for investment firms”.
The Economist largely agrees. The publication cites researchers at the European Capital Markets Institute, who argue that although MiFID’s burden falls heaviest at first on the banks, in the long run it is the exchanges who may be most affected.
Though the authors expect large exchanges to be the main source of liquidity for a good while, they reckon that “the traditional business model of established exchanges is going to be challenged as never before.”
In leader comment Day of The Mifid the FT says MiFID will not be a Big Bang event in the creation of the European Union’s single financial market so much as the start of a long roll-out.
One reason is that 10 of the EU’s 27 member states were still unprepared for Mifid. But this should not detract from the significance of this day, the FT says.
MiFID is a substantial and potentially sweeping piece of EU law-making. Its objectives of creating efficient conditions for trading securities and other financial instruments, promoting competition and providing EU-wide standards for investor protection serve the laudable goal of fostering economic growth in Europe through the creation of deep, liquid and well-regulated financial markets of a continental scale.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.