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Today, November 1st is the day the Markets in Financial Instruments Directive (MiFID) becomes operational for the majority of the European Union’s regulated financial organisations. Even those in countries that have lagged in their implementations will be impacted as the investment market structure is expected to change as never before since the creation of the EU.
What is it? What will happen? Is everybody ready? Who will win? Who will lose? What will the markets look like in a years time? These are questions on everyone’s mind. Without doubt, for all of us who live directly by the investment markets, and we have to accept that the vast majority of the EU neither knows nor cares about MiFID, this is the most exciting time since the Big Bank or Black Monday.
MiFID replaces the Investment Services Directive, in place since 1993, and is a part of the Financial Services Action Plan, the EU initiative designed to improve the single market in financial services and provide a level playing field across Europe. The objective is to break down national barriers to cross-border financial services business with a single EU “passport” that allows firms registered in one member state to do business in another. An important change is the concentration rule - that shares no longer have to be traded on their home exchange but can be traded anywhere and everywhere. There are also rules on client classification, that instruments must always be traded at the best available price (the best execution rule), pre-and post-trade transparency and avoidance of conflicts of interest. There is a fragmentation of the market in what can be done by whom. Essentially anyone can set up their own financial instruments exchange!
Is everyone ready? The answer is no! Some, but not many, large firms are not ready, many medium firms have a lot to do and few small firms are anywhere near ready. But this does not matter as it is the large firms, those trading across borders that are moist effected. More serious is that some EU countries are not ready. Spain, Europe’s fourth biggest equity market, is nowhere near ready – December or even January looks like the earliest possible date. Can the EU avoid a fragmentation of liquidity caused by early starters in new markets and late compliers in key states?
Who will win, who will lose? Where will we be in a year’s time? Over the next weeks Chase Cooper's Regulatory News and monthly Corporate Challenges newsletters will make an attempt to second guess the future.
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