Reflections on the Path to MiFID II

Looking back at MiFID II’s development, there were numerous delays between the European Securities and Markets Authority (ESMA) and the industry. Could those have been avoided or were they inevitable?

I would say that they were unavoidable. It appears that the original timeline didn’t incorporate sufficient time for the level of industry consultation that was required.

Could the delays be considered beneficial since they gave firms a chance to prepare?

In retrospect, I think the delays were a good thing. MiFID II is a complex topic touching on many areas for firms and covering substantial parts of their business. As a result, it took firms and vendors significant time to digest the new regulations, assess the impact and make the necessary adaptions to the systems and processes.

MiFID II’s aims were to improve transparency in the Equities markets and reduce complexity for finding liquidity and executing trades. Has that happened?

We have already seen shifts in the liquidity and where people are executing, but I’m not sure that this has truly provided better pre-trade transparency to the marketplace. What is certain is that a new layer of complexity has been added to an already complex environment.

There are still adaptions that will occur, as we have yet to see the SI, Citadel, Aquis and others kick in fully, making it difficult to predict which ones will be successful. Consequently, the industry will continue to evolve over the coming months.

How do you think the liquidity landscape will adapt in the coming months and years to cater to these evolutions?

That is yet to be seen. The impacts of the double volume cap (DVC) have been less than expected in some markets, but the liquidity is still shifting. We are hearing that block trading volumes have seen dramatic increases after the March DVC introduction.

We will certainly see brokers and exchanges come up with new and innovative ways to capture liquidity in the post-MIFID II world. And, we will need to adapt if our clients are to access the relevant pools of liquidity that ensure best execution.

What’s the overall challenge at this point when it comes to MiFID II?

The challenges vary from firm to firm. For those whose business is providing access to global liquidity, the key challenge is having the vision to be proactive, seeing where the liquidity is moving and ensuring you have the capabilities to access these pools.

For others, the key challenge is compliance and ensuring that the raft of regulations are correctly adhered to so they can feel confident when regulators come knocking to conduct audits.

If firms have completed their MiFID II compliance projects, where are they redirecting those freed-up resources?

I think many feel the burden of MIFID II is coming to an end and they can see the light at the end of the tunnel. Many firms “made do” to successfully deliver MiFID II, equating to longer hours, enormous workloads and stresses on top of daily work.

As such, I’m not sure that it’s a redirect of resources but more of a let-up on the pace.

Any final thoughts?

It wasn’t an easy path or a short journey, but we got there. Now that we’ve arrived, we’re seeing changes to the landscape with new liquidity pools like Auction on Demand and some of the new SIs.

One thing is certain – there is more to come and people need to be ready to adapt as necessary.