MiFID II came into effect on January 3, 2018, and we are already starting to see some short-term effects. For instance, although bank-to-client communication remains predominantly voice-driven, we’ve seen electronification of many of the internal processes – especially those that connect the sales and trading desks.
This is similar to what happened after MiFID I, when sales desks in, say, London continued to shout orders at regional desks in continental Europe while also sending the order electronically. These parallel processes eventually diverged into electronic-only, and we’ll see the same thing with MiFID II as sales and traders start trusting electronic forms and seeing the efficiencies.
Longer term, there’s an interesting story being played out around the sales organization. Many of our clients have been working to set up sales desks that are able to sell multiple asset classes. I believe that this will reshape sales into a purer form of sales and relationship role. A role with focus on the customer and less trading oriented.
However, there’s an opposite trend because MiFID II prohibits firms from selling research and execution services together. If a salesperson gives advice on a trade because they know where the liquidity is, for example, that could be considered research, so it has to be charged for.
So there are two opposing developments – one is that you need senior people who can sell, but equally, they have to be careful how they sell because they can’t sell research. I’m keen to see how these two trends play out.
But for now, electronification driven by MiFID II has mainly changed the way banks work internally. As an example, a client calls and asks to trade some product. Before, the salesperson would shout to one or multiple traders to ask for a price, each trader would type the information into a system or Excel spreadsheet and respond with their price, and sales would communicate that back to the client.
Today, instead of shouting it out, sales will input that order into the system and it will be routed to the relevant trading desks who will price their part of the product (for example, spot, forward rate, volatility, etc.). The benefit for the trading desks is that they only need to price the product, not enter it into the system. It’s faster for trading to price it and do the trade. But, while the total round trip of the trade might be faster, the initial step at the sales desk may is slower – for now.
Also, if you automate more processes and clients do more themselves online, that will also reduce the role of sales. For standardized products, clients will ultimately be interacting directly with the trading desk, cutting sales out of the process. That’s already happening today, and this workflow will continue to be adopted for more asset classes and products, including bespoke OTC derivatives.
So MiFID II’s long-term impact may affect sales much more than it does trading. Could the sales organization eventually disappear? What do you think?