FIXNETIXThe ultimate trading advantage
Managing Director
Jefferson Young
MiFID & MiFIR Update
Matthew Argent
Editor FT trading Room
Financial Times
MiFID & MiFIR Update
Philip Stafford
Chief Administration Officer
Fixnetix Limited
bob.fuller@fixnetix.com
Major changes in EU
trading regulation & how it
migh...
Where is the London market now?
Five Stages of Grief
• Denial – This can’t be happening to me.
• Anger – Why me?
• Bargain...
EU Regulations, where are we?
• EMIR – Passed
• OTC Derivatives – Passed
• MAD 2 Directive – Passed
• MAD 2 Regulation – P...
Under EU law
Directives
• must be transposed into each Member State’s
national law by secondary legislation
• ample scope ...
Where are we in the MiFID II process?
For the US to recognise the EU withing
the Dodd Frank regime MiFID 2 and
MiFIR 2 MUS...
• MiFID 1 is NOT repealed but a lot of the definitions
are changed i.e. It’s not just about Equities, but
about everything...
• The Equity model is to be used as the base model
for ALL instrument types.
• This will inevitably move ALL instrument ty...
Main Market Structure Items 3
• Controls and constraints on High Frequency
Trading. Including prior approval by a regulato...
MiFID 196 pages
MiFID 2 464 pages
MiFIR 60 pages
MiFIR 2 243 pages
Original total 256 pages
New total 707 pages
Overall ve...
MiFID II’s much more reliance on Regulation rather
than Directive plus the new sanction regime
characterises the significa...
Financial Transaction Tax
Still being proposed by 11 EU countries with
Equities being set at 0.1% and Derivatives at
0.01%...
German HFT rules
Now in place
• Need to have a capitalised presence in
Germany to Algo/HFT trade
• May move flow to London...
What Structural Changes may this cause?
• Reduction/removal of margin income on customer flow
• Dramatic reduction in voic...
Any Other Structural Changes?
All of these changes are moving formally Back Office End of Day functions
to be more Front O...
Where is the market?
Five Stages of Grief
• Denial – This can’t be happening to me.
• Anger – Why me?
• Bargaining – Attem...
Immediate Preparations for you
• Speak with your compliance departments
• Read all the regulations
• Attend conferences an...
Panel Q&A
Moderator
Phil Stafford
Financial Times
Vivienne Bannigan – Policy Director, Capital Markets, BBA
Bob Fuller -...
FIXNETIXThe ultimate trading advantage
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EU Regulation Exchange presentation, March 2014

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EU Regulation Exchange presentation, March 2014

  1. 1. FIXNETIXThe ultimate trading advantage
  2. 2. Managing Director Jefferson Young MiFID & MiFIR Update Matthew Argent
  3. 3. Editor FT trading Room Financial Times MiFID & MiFIR Update Philip Stafford
  4. 4. Chief Administration Officer Fixnetix Limited bob.fuller@fixnetix.com Major changes in EU trading regulation & how it might affect you Bob Fuller
  5. 5. Where is the London market now? Five Stages of Grief • Denial – This can’t be happening to me. • Anger – Why me? • Bargaining – Attempting to make deals. • Depression – Feelings of hopelessness. • Acceptance – Getting on with life.
  6. 6. EU Regulations, where are we? • EMIR – Passed • OTC Derivatives – Passed • MAD 2 Directive – Passed • MAD 2 Regulation – Passed • MiFID 2 Directive – Will be passed 16th April 2014 • MiFIR 2 Regulation – Will be passed 16th April 2014 Latest/almost final versions of MiFID 2 and MiFIR dated the 17th February 2014
  7. 7. Under EU law Directives • must be transposed into each Member State’s national law by secondary legislation • ample scope for incorrect/incomplete porting Regulations • ‘binding in their entirety & directly applicable in all Member States’ What is the difference between a Directive and a Regulation?
  8. 8. Where are we in the MiFID II process? For the US to recognise the EU withing the Dodd Frank regime MiFID 2 and MiFIR 2 MUST be passed before the EU parliament retires in April (for the May Elections)
  9. 9. • MiFID 1 is NOT repealed but a lot of the definitions are changed i.e. It’s not just about Equities, but about everything except FX. • No mixing of the prop book with customer orders unless you are an Systematic Internaliser. The end of Broker Crossing Networks as we know them. • Much more transparency, with increased restrictions on trading ‘in the Dark’ ( 8% in market total for any instrument and 4% for any market venue – then 6 months of NO dark activity!) Main Market Structure items 1
  10. 10. • The Equity model is to be used as the base model for ALL instrument types. • This will inevitably move ALL instrument types to electronic trading (the demise of voice trading) which will require more connectivity and less traders. • Greater emphasis on Best Execution so more historic proof of what you did and why. • Mandatory Clearing of new instruments. Main Market Structure Items 2
  11. 11. Main Market Structure Items 3 • Controls and constraints on High Frequency Trading. Including prior approval by a regulator! • Both firms and individuals will be subject to fines and/or other sanctions given any ‘ignoring of the rules’. • Non Equity Clearing open to competition over time.
  12. 12. MiFID 196 pages MiFID 2 464 pages MiFIR 60 pages MiFIR 2 243 pages Original total 256 pages New total 707 pages Overall very nearly 3 times the size. Note how much bigger MiFIR is over 4 times the size Some Statistics to ponder
  13. 13. MiFID II’s much more reliance on Regulation rather than Directive plus the new sanction regime characterises the significantly altered risk/reward balance. A big change from the much lighter touch framework that has been in place since competition in equities trading was first opened up five years ago by MiFID What is the main structural difference between MiFID and MiFID 2?
  14. 14. Financial Transaction Tax Still being proposed by 11 EU countries with Equities being set at 0.1% and Derivatives at 0.01%. Due soon? • Extra Territoriality • Definition of when it is due • Competitiveness of EU institutions May include FX (see recent EU legal challenge!) What other EU rules may affect Trading?
  15. 15. German HFT rules Now in place • Need to have a capitalised presence in Germany to Algo/HFT trade • May move flow to London Local EU laws
  16. 16. What Structural Changes may this cause? • Reduction/removal of margin income on customer flow • Dramatic reduction in voice trading, more electronic trading – smaller trading rooms? • Potential reduction in liquidity for some instruments • Increased IT costs / reduction in revenues This is very likely to lead to: • More specialisation within an entity, only concentrate on what you are good at. • Increased IT spend and increased IT risk. • More outsourcing or use of utilities
  17. 17. Any Other Structural Changes? All of these changes are moving formally Back Office End of Day functions to be more Front Office Real-Time ones. For example there will be a need to move collateral in real-time, due to: • More transactions being cleared requiring more initial margin. • As the CCP’s will be more regulated they will not be able to offer so much intra day credit so to carry out the next trade they will need to have control of the collateral. • This will lead to: • The need to settle transactions quicker to enable the proceeds to be used as collateral. • The lack of available collateral putting a stop to trading activity! All of which will require major changes to systems and communications infrastructure for these current Back Office functions.
  18. 18. Where is the market? Five Stages of Grief • Denial – This can’t be happening to me. • Anger – Why me? • Bargaining – Attempting to make deals. • Depression – Feelings of hopelessness. • Acceptance – Getting on with life.
  19. 19. Immediate Preparations for you • Speak with your compliance departments • Read all the regulations • Attend conferences and events on regulations • Discuss with peer group and industry associations Most of all, these regulations will need significant Senior Management involvement as they will affect what you trade and how you trade it.
  20. 20. Panel Q&A Moderator Phil Stafford Financial Times Vivienne Bannigan – Policy Director, Capital Markets, BBA Bob Fuller - CAO, Fixnetix Richard Kemp - Senior Partner, Kemp Little Elizabeth Callaghan – Capital Markets Regulatory Specialist
  21. 21. FIXNETIXThe ultimate trading advantage
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