MiFID was implemented over 6 months ago and it's worth looking at its first impacts and questioning if the investors are actually better off than a year ago?
The obvious change that is probably the sexy end of MiFID is the amount of new trading venues springing up. Some are already operational with others still to get off the ground, so it's possibly too soon to measure and draw a conclusion. Despite this there
are many people in the media running around excitedly announcing how MiFID is a major success and is already producing coffins for the traditional Stock Exchanges. There seems an almost obscene over eagerness to bury the Stock Exchanges and laud the new trading
venues as the guys in white hats swiftly coming to the aid of the wagon train of investors hemmed in and surrounded by Stock Exchange Indians!
Now it's fair to say that the Stock Exchanges have not exactly covered themselves in glory over the years with an almost monopolistic approach to their customers and a distinctly aloof attitude, which needed changing. With developing technology and the creation
of a small but powerful number of elite investment banks, which dominate the global capital markets with their volume of transactions, the Stock Exchanges have been slow to recognise the need to change and meet the needs of their customers. So MiFID will be
seen by some as a kind of retribution and a chance to take on the Stock Exchanges. However, is this going to be a good for the investor?
The idea is that MiFID opens up the Stock Exchange business to any number of new electronic trading venues all able to offer faster and cheaper executions. But although this sounds pretty good to an investment bank trading millions of bargains a day what
good is it to the small advisory broker trading hundreds of bargains? There has always been an argument that there is a gap between the business offered by large investment banks and those offering traditional broking services and it now appears that the chasm
Do more trading venues automatically mean it's a good thing for the market? I think this is still a question, although you could be forgiven for thinking that it was in fact "a
fait accompli" when reading all the stuff in the media and people presenting MiFID, as a joyous event, with absolutely no down side.
Markets of any kind do not work well when the price is fragmented but this is what MiFID is creating. It's rare that market fragmentation is good for the investor. It's taking a consolidated price from a single point of access and producing any number of
different avenues to find the best price. Yes, we gain more speed and a cheaper price but how much of this benefit will actually percolate into the pockets of investors? The Best Execution element of MiFID is only a part of the directive but it's the one that
has created most new business and most media comment. Other articles within MiFID have a far more obvious investor reward as an objective, such as
I am all for choice and competition to drive costs down and services and efficiency up but the explosion of new venues looks more like a new game for the red braces brigade, in the dealing rooms, than for the investor who is more concerned with their pension
plan or investment portfolio.
So far I have not seen or heard that any investor has been offered a better deal because of MiFID. It is just an accepted fact but has it actually been distilled down and analysed thoroughly to quantify if the investor actually benefits and how? With many
investors remaining unaware and oblivious to MiFID and how it is better for them and so little attention given to investors needs, without offering them a clear improvement of price and service, its right to say that MiFID is failing at the vital end where
it must be measured; the Investor!
Although it might be fun to look at MiFID six months after implementation and see the sleepy markets totally disrupted and redesigned the question remains a nagging one: Is the investor worse or better off because of MiFID?