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MiFID II – The Monster Lives

Yes, we finally got to the end of the messy stuff. MiFID II, the European Union’s revised regime for regulating investment products, was handed over by the ‘trialogue’ negotiators to the legislators on 14th January, only about two years behind schedule. And if there were any bloodstains or missing teeth lying around on the carpet, nobody seems to have noticed.

In case you’ve missed it, the ‘trialogue’, consisting of the European Commission, the European Parliament and the European Securities and Markets Authority (ESMA), has spent the last four years debating fiercely on how to create a uniform system of market regulation that will work anywhere from Dublin to Dubrovnik. The point here is that not all markets are as trusting or as liquid and well regulated as London – and that if Italian or Latvian investors are to enjoy adequate protection, then the uniform European rules need to be rather tighter than we Brits might perhaps think necessary.

All that, however, is for 2016, when the new regime should finally make it into force. For the moment, we should note that, in theory at least, MiFID II could pull rank over the FCA’s own authority – although in practice that’s unlikely, because MiFID II is only intended as a lowest common denominator, and our own national rules are generally tighter. But it might have got nasty if the suspicious voices in the European Parliament had succeeded in banning execution-only trading or ‘complex’ ucits for unsophisticated investors, as some of them had certainly wanted to do.

The good news is that, as far as anyone can tell, the massive MiFID document that’s now going off for finalisation doesn’t darken advisers’ brows with any of these thorny issues. Instead, it focuses its attention on obscure issues like the ‘dark pools’ where share transactions currently take place off-market and unrecorded: in future, these deals will be traded in a new generation of dedicated facilities (organized trading facilities, or OTFs). And there’ll be technical limitations on ultra-high-speed transactions – sorry, ‘algorithmic trading controls’ – and much, much more.

For the moment, we can be thankful for two things. Firstly, that Brussels doesn’t appear to have meddled with the consumer side of things. And secondly, that this rather important, if obscure, piece of technical legislation was allowed to see the light of day in the arena without simply getting stuck in the tunnel. 

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