Bankers work through the night to iron out last minute hitches before the launch of a major reform of European Union financial markets that aims to apply lessons from the financial crisis nearly a decade ago.
The new rules are already a year late due to their complexity and regulators have had to issue eleventh-hour guidance to banks and financial firms to avoid trading freezes as well as calming nerves of those not yet fully compliant.
“For the markets facing processes, there will be a very intensive through-the-night activity,” said David Lawton, a managing director at consultants Alvarez & Marsal and former senior markets regulator at Britain’s Financial Conduct Authority.
The new regime shines a spotlight on the innards of stock, bond, commodity and derivatives markets by forcing banks, asset managers and traders to report detailed information on trillions of euros in transactions.
Banks and trading firms have spent millions of euros getting ready for the big day. A report from Expand, part of the BostonConsulting Group and IHS Markit, has estimated that top global banks and asset managers will have spent $2.1 billion last year to comply with the rules. Lawton expects the new regime to trigger consolidation as the competition it aims to promote proves too much for some.
Credit rating agency Standard & Poor’s said there would likely be more losers than winners from the profound changes being ushered in.
The aim is to increase transparency and bolster investor protection to avoid some of the problems of the 2007-2009 financial crisis. Stock, bond, derivatives, commodity and other trades must all be reported to a repository, giving regulators a trove of data to track trades and try to spot bubbles early after failing to see the last crisis coming.
When the rules go live, fund managers and others must for the first time fill in a transaction report with up to 65 bits of data within 15 minutes of a trade — or risk being fined. The rules, known as MiFID II or Markets in Financial Instruments Directive II, represent a revamp of the 2007 MiFID law to increase transparency and investor protection and broaden its scope to take in more financial products. MiFID II will be a journey and not a one off event in January, is how one national regulator responded to questions about how trading will unfold on January 3.
The European Securities and Markets Authority, which is overseeing the roll out, published a flurry of statements just before Christmas to tackle some remaining road bumps. “ESMA, in close cooperation with the national regulatory authorities across the EU, has carried out a broad range of work... to ensure that the framework is in place to ensure a smooth transition from MiFID I to MiFID II,” ESMA Chairman Steven Maijoor said. — Reuters
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