Viewpoint : Regulation : Silvano Stagni

It’s fast and furious.

Silvano Stagni, group head of marketing & research at IT consultancy, Hatstand explains that the pace of regulatory change has quickened and you ignore it at your peril.

ESMA’s first consultation on MiFID II/MiFIR has a very short timescale and part of this haste has to do with the choice that the European Commission and the European Supervisory Agencies made a few years ago. The decision to push post-trade derivative regulations to meet political commitments at G20 level left the review of rules concerning the trading of derivatives, transparency and investor protection in need of revision. This is now forcing the pace of the MiFID review.

EMIR is a regulation and it should be implemented in the same way across the Single Market in Financial Services. However, this cannot happen because some of the definitions in EMIR depend on what has been defined in MiFID I (a directive). It therefore has national flavours that are in direct conflict with the idea of applying EMIR in an identical way across the territory.

The market has moved in a direction that requires a review of MiFID anyway. In the past three years, ESMA has issued regulatory guidelines in an attempt to bridge the gap until MiFID II/MiFIR became effective, such as the ESMA regulatory guidelines on automated trading published towards the end of 2011.

Last but not least, financial markets are a global business. Cross-border trades carry a huge regulatory burden unless there is ‘equivalence’ between jurisdictions. For instance, full equivalence with the US can only be established once we have trading rules in place, since Title VII of Dodd-Frank covers both trade and post-trade workflows. The CFTC and SEC have waivers in place that will expire in 2016; failing to have a defined regulatory environment with a set date for implementation by the time those waivers expire may have serious consequences for European institutions that could find themselves in the position of having to implement Dodd-Frank in its entirety for a short time.

The definition of level 1 for MiFID II and MiFIR was a lengthy process and ESMA is therefore trying to catch up by publishing both a consultation paper and discussion paper by the end of May, in tune with the consultation’s end on 1st August. At this stage of the process, ESMA poses many questions and generally listens to people’s opinions, providing they are adequately supported with examples and case studies and that their points are made in a rational way. Don’t say, ‘this is too complicated; it will never happen’, but explain why you believe it will never happen and support your argument with examples. If enough people make your point in an intelligent and unemotional way, they will listen.

So, why do you need to engage in the process? MiFID II/MiFIR will define your trading environment, the way you relate to your clients and your best execution obligations – amongst other things. They will also refine the definition of some of the principles detailed in other directives and regulations, such as the Market Abuse Directive and Regulation (MAD/MAR) and EMIR. You ignore this process at your own risk.

© BestExecution 2014