Implementation vs. Intent III: MiFID II

Today marks the date of implementation of MiFID II, the most sweeping legislative package ever undertaken by the European Union, or indeed ever applied to the global financial services industry. The real effects of its implementation will take some time to become visible, and we’ll be keeping an eye out for them along with the rest of our industry in months to come. What effects might we begin to see in the shorter-term however? And to what extent will these reflect the underlying intent behind MiFID II?

As was expected, implementation is far from complete – there have already been announced several official delays. Towards the end of December it emerged that European markets authorities had decided to allow banks and their clients an additional six months to comply with the component rules of MiFID that required them to have individual Legal Entity Identifiers (LEIs) in order to continue trading.

Today, with the deadline that has been looming for over seven years having finally arrived, it has been announced that the UK and Germany have approved last-minute reprieves for Europe’s biggest futures exchanges to implement the rules. On the day that MiFID II’s rules related to clearing come into force, the London Metal Exchange and Ice Futures Europe have been granted no less than 30 more months to comply with them.

It is not the complacency of financial institutions that makes this unsurprising, but rather the sheer scope of the regulation. Consisting of over 70,000 pages and containing 1.5m paragraphs, it is an unwieldy piece of legislation. Few people expected its implementation to be flawless from the start. These delays and setbacks needn’t worry us however. As we’ve previously written, today marks the beginning of a process rather than the occasion of an event. The long-term benefits of MiFID II’s implementation – including increased transparency between parties to a trade, strengthened trust between partners and increased incentives for longer-term trading relationships – shouldn’t be damaged by short-term setbacks.

So we mustn’t expect instant results. In the spirit of a New Year however, and to mark the occasion of an extremely significant date in the financial world, it can be of interest to add to the panoply of questions that have been put forward by various experts and market participants to date, especially given the opportunity to look back at our thoughts later in the year. Two of the questions we’re most interested in are how the new legislation will differently affect European and North American regulatory culture and how the increased role of technology in finance will evolve, including its regulation.

Beyond any short term changes, for the benefits of an evidently more transparent market place we will have to be patient. Today marks the start of a process and we remain hopeful that with full engagement from market participants and regulators, it is a process which will lead to more efficient and transparent markets in the future.

Hugo Kruyne, January 3, 2018.