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First test for MiFID ...

As I write this blog, teams across the UK are putting their final MiFID changes into systems ready for M-Day this week. Although MiFID is a Europe wide regulation - I say across the UK deliberately. Whilst the likely impact of MiFID has been compared to Big Bang, the implementation of it has essentially become phased - although not by design - due to the much discussed late transposition of MiFID into national law of many member states. So, the UK will - by and large - start to operate in a MiFID way from next week, but I hear from German firms they are looking at year end as their target and the Dutch have February pencilled in as their likely adoption timescale. Others have yet to even define a target. To head off potential chaos, regulators across Europe have been scrambling over recent weeks to provide transitional arrangements to level the otherwise rather undulating playing field.

So what will change from this week? There is likely to be an immediate fragmentation of trade reporting data in the Equity markets with Boat and other new reporting venues attracting reports for off market trades. In the short term, this will cause confusion at least until the data vendors work out how to effectively consolidate and de-duplicate this data. There is also still the ongoing debate, voiced several times in recent weeks in this forum, as to whether market data costs for smaller market players will go up significantly. My opinion is that they will.

Another key question is whether anyone will challenge MiFID "best execution" in the short term? I suspect they will. Whether it is an "activist" investor out to stir up the market or a portfolio manager seeking to prove to their clients that they are doing a better job of controlling their brokers than the competition, the temptation to use this new device will be too strong for someone. Will this have an impact on how traders will operate in volatile markets? We will see how this develops.

So a big week for MiFID as it faces its first market test ...


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