Passports

Just been through Heathrow again, and off to Le Continent.  Basic principles – no passport, no fly.  That’s even more important for Brits, as the UK is not signed up to the Schengen treaty.

In 1993, the EU’s Investment Services Directive (ISD) became the “Schengen” of European financial markets.  If you are an investment firm or exchange registered in one EU member state, you can do business across all EU member states without having a local presence in each country.  You get a “passport” to provide financial services across the EU.  That led to the take-off of electronic cross-border equity trading.

If the country hasn’t implemented MiFID, investment firms and exchanges based there don’t get a MiFID passport, and so can’t operate in any other country unless their home state has its own mutual-recognition policy with that other country.  However, investment firms and exchanges from countries that have implemented MiFID can do business across all EEA member states, whether those states have implemented MiFID or not.

Maybe national regulators will be flexible.  Maybe they’ll allow firms and exchanges that don’t have a license to do business in the regulator’s country to just carry on as usual.  Maybe local firms will be happy to do business with foreign firms that aren’t licensed to do business locally.  Maybe local exchanges won’t complain that competing exchanges from countries that haven’t implemented MiFID yet could be operating abroad illegally.  Maybe the big firms won’t take advantage of MiFID and use their MiFID passport to move into other EEA countries where the locals are running late and ramp up the competitive stakes. Maybe shareholders in investment firms and exchanges won’t care how this could affect the prices of the shares that they own.