February 7, 2018

The dawning of MiFID II was reminiscent in some ways of the opening of Terminal 5 at Heathrow Airport in 2008. All hands were seemingly at the pump, but not everyone was as ready as they had hoped or as operator BAA put it at the time, there were “staff familiarisation” issues with the new hub.

It was a similar story with MiFID II. Market participants were all burning the midnight oil in the run-up to the 3rd January deadline but there were still several hanging threads. In response, the European Securities and Markets Authority (ESMA) issued several last minute reprieves to allow many in the industry more time to stitch everything together in a more complete fashion.

This is certainly the case with Germany’s Eurex, ICE Futures Europe and the London Metal Exchange who were given a huge 30-month reprieve to prepare for the introduction of non-discriminatory access requirements for trading venues. Parties to a financial trade also cheered when they heard they had an extra six months to obtain a legal entity identifier or LEI.  Many bank customers were slow off the mark, which would have made executing trades a difficult exercise.

One of the biggest surprises perhaps was the three month delay to imposing caps on dark pool trading.   Opponents to the controversial limits should not break out the champagne though because this does not signal a change of heart. Instead, it is down to technical issues and giving trading venues more time to get their reporting systems in order. As the new rules came into effect, ESMA said it received incomplete sets of information which painted a “biased picture” of the market.

Not surprisingly, ironing out these glitches will take time. Implementing 20,000 plus pages of a new rule book was never going to be plain sailing and there were bound to be teething problems. However, like Terminal 5, it will be a journey and not a one off event, with customers being the ultimate winners.

Under MiFID, especially once the dark pools caps come into effect at the end of March, this takes the form of a more level playing field and fund managers being obliged to achieve Best Execution for their clients. This means finding the most liquid, transparent, fastest and cost effective venues. They will not have to look too far as Aquis Exchange is a lit market that has been honing this model for the past four years and has consistently been one step ahead of the pack with its innovative subscription model, rule to protect from toxic trading and state-of-the-art technology.

By Lynn Strongin Dodds