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Article
Publication date: 11 May 2015

Lukasz Prorokowski

This paper aims to discuss the impact of nascent Markets in Financial Instruments Directive (MiFID II) initiatives and, thus, to deliver practical insights into MiFID II

Abstract

Purpose

This paper aims to discuss the impact of nascent Markets in Financial Instruments Directive (MiFID II) initiatives and, thus, to deliver practical insights into MiFID II implementation, compliance and cost reduction MiFID II constitutes the backbone for the upcoming financial market reforms. With the first proposal of MiFID drafted in October 2011, this regulatory framework has undergone over 2,000 amendments. As MiFID II currently stands, this Directive attempts to address issues exposed by the global financial crisis.

Design/methodology/approach

This study, based on secondary research and an in-depth analysis of the MiFID II framework, investigates structural and technological challenges entailed by this Directive. The analysis is broken down into the following sections: technological and structural challenges; costs of implementation; MiFID II teams; facilitating near real-time regulatory reporting; increased transparency requirements; and information technology (IT) initiatives for MiFID II compliance.

Findings

MiFID II commands significant changes in business and operating models. With this in mind, the study indicates current technological and structural challenges faced by financial institutions and advises on ways of mitigating MiFID II risks. Although it is too early to assess the costs of implementing MiFID II, this paper suggests ways of reducing MiFID II-related costs. The study also advises on organising dedicated teams to deal with MiFID II. Furthermore, this paper argues that early investments in IT systems and processes would allow financial services firms to gain a competitive advantage and, hence, scoop up market share or launch new, lucrative services – especially in the area of collateralisation and market data processing.

Originality/value

This paper shows that the current version of MiFID II still requires a great deal of attention from the regulators that need to readdress contentious issues revolving around the links between MiFID II and other regulatory frameworks such as European Market Infrastructure Regulation and Dodd–Frank. This study addresses the MiFID II compliance issues by adopting European Union and non-European Union banks’ and asset managers’ perspectives and, hence, delivers practical implications for risk managers and compliance officers of various financial institutions.

Details

Journal of Financial Regulation and Compliance, vol. 23 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 13 November 2019

Maik Huettinger and Agnė Krašauskaitė

The purpose of this paper is to assess the impact of the markets in financial instruments directive II (MiFID II) on investment services in the Baltic states.

Abstract

Purpose

The purpose of this paper is to assess the impact of the markets in financial instruments directive II (MiFID II) on investment services in the Baltic states.

Design/methodology/approach

The authors take an exploratory, qualitative approach, based on data conducted from interviews with nine investment industry professionals using the laddering technique. The pool of experts was selected using the purposeful sampling method, and experts must have had a minimum of five years investment experience in the Baltics, working familiarity with MiFID II, and a university education in the fields of finance or economics.

Findings

The strict requirements of MiFID II reduce the range of available investment products and services for customers in the Baltics. Also, the profitability of Baltic investment companies decreased due to high compliance costs and bans on inducements. The results indicate that this may lead to increased barriers to entry and mergers and acquisitions for small investment companies.

Originality/value

To the best of the authors’ knowledge, this is the first attempt to research the implications of MiFID II implementation in the Baltic states. The qualitative approach chosen offers a unique opportunity to highlight the critical effects of MiFID II on financial intermediates in smaller geographical markets.

Details

Qualitative Research in Financial Markets, vol. 12 no. 3
Type: Research Article
ISSN: 1755-4179

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Article
Publication date: 10 January 2019

Peter Yeoh

This paper aims to discuss key concerns surrounding the recent implementation of the Markets in Financial Instruments Directive (MIFID II). It focuses on the UK regime…

Abstract

Purpose

This paper aims to discuss key concerns surrounding the recent implementation of the Markets in Financial Instruments Directive (MIFID II). It focuses on the UK regime. The insights derived are envisaged to be helpful guides for participants and regulators in financial markets.

Design/methodology/approach

This paper used the legal-economics perspective. It relied on primary data from statutes and regulations and secondary data from the public domain to analyze the phenomenon. The analytical framework comprised the following sections: Introduction, MiFID I review, MiFID II scope, MiFID II key concerns and concluding remarks.

Findings

Only half of the EU Member States including the UK managed to transpose MiFID II within the 3rd January 2018 effective date. At this early stage of implementation, various teething problems were encountered. These pertained to costs and charges reporting, firm governance, product governance, transaction reporting, best execution and research. Owing to the sheer scale and complexity of MIFID II, most entities barely coped with their reporting obligations. Noting the situation, the Financial Conduct Authority assured firms taking all sufficient steps that they would be treated fairly.

Research limitations/implications

The paper was not sufficiently empirical. However, the study benefited reasonably from triangulation of data and perspectives to provide good insights on the implementation effects of the complex and voluminous EU rules for governing financial markets with global implications.

Practical implications

Investors could gain from the enhanced transparency and best execution rules. Investment banks could gain from the emerging resilient, integrated and efficient financial markets. Regulators with better access to more and higher quality reporting could intervene more effectively when required.

Originality/value

This paper assembled and critically analyzed currently available research insights in these areas so as to provide useful guidance to those needing to work and comply with MiFID II rules and academics teaching financial services law.

Details

Journal of Financial Regulation and Compliance, vol. 27 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

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Article
Publication date: 18 December 2020

Tom Loonen

The Markets in Financial Instruments Directive (MiFID) II directive was enforced in the EU in January 2018. While EU-member states implemented this directive in their…

Abstract

Purpose

The Markets in Financial Instruments Directive (MiFID) II directive was enforced in the EU in January 2018. While EU-member states implemented this directive in their national legislation, investment firms are still enforcing compliance. With the purpose of “investor protection”, the purpose of this study is to investigate the effectiveness of transparency, suitability, warning and information requirements. How do investment advisers view and embrace these MiFID II requirements? Are differences evident within this group of professionals?

Design/methodology/approach

In total, 267 Dutch investment advisors serving non-professional investors daily completed structured surveys on their opinion of the acceptance and effectiveness of the MiFID II requirements. The findings are compared with existing literature to examine similarities with other legislation.

Findings

The results demonstrated differences depending on the investment firms’ size and investment advisors’ seniority and gender. Professionals should be critical of new legislation and regulations, as it limits their autonomy. However, female investment advisors and those with up to ten years’ experience are less critical of the effectiveness of the MiFID II requirements, embracing them without discussion. Investment advisors in large investment firms believe that MiFID II contributes to investors’ interests, whereas those in small and medium-sized investment firms often do not share this opinion. For example, respondents considered cost transparency an effective requirement to achieve better investment services and protect investors’ interests.

Originality/value

The effectiveness and applicability of legislation are often viewed from a legal perspective, and enforcement is essential. However, this study explores legislation from the perspective of professionals under supervision.

Details

Journal of Financial Regulation and Compliance, vol. 29 no. 2
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 2 May 2019

Tom Loonen and Randy Pattiselanno

This paper aims to identify the duty of care that applies to ‘professionally classified clients’ based on the recently implemented Markets in Financial Instruments…

Abstract

Purpose

This paper aims to identify the duty of care that applies to ‘professionally classified clients’ based on the recently implemented Markets in Financial Instruments Directive II (MiFID II) as well as the previous Markets in Financial Instruments Directive I (MiFID I). The authors place critical notes on the effectiveness of some MiFID provisions.

Design/methodology/approach

The authors have reviewed the Delegated Acts of MiFID I and II, as well as Q&A’s of the European Regulator, ESMA and jurisprudence. The authors aim to add value by facilitating a discussion on the effectiveness of applicable MiFID provisions.

Findings

This review of the legal provisions provides researchers and practitioners in the investment sectors with a clear overview of the legal provisions detailing how these provisions should be met and how improvements to the provisions can be achieved.

Practical implications

This paper specifies what the provisions for professional classified clients are and facilitates a discussion on the effectiveness of these provisions.

Originality/value

Addressing the legal provisions which are applicable to ‘professional classified clients’ that derive from MiFID I and II and includes a critical analysis which offers an original perspective.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

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Article
Publication date: 8 May 2018

Paul J. Delligatti and William P. Lane

The purpose of this paper is to summarize and discuss the implications of three related U.S. Securities and Exchange Commission (SEC) no-action letters dated October 26…

Abstract

Purpose

The purpose of this paper is to summarize and discuss the implications of three related U.S. Securities and Exchange Commission (SEC) no-action letters dated October 26, 2017 that seek to address the provisions of MiFID II related to “inducements”.

Design/methodology/approach

Provides background information regarding MiFID II and summarizes each of the three SEC Staff no-action letters: the SIFMA letter, the ICI letter and the AMG letter.

Findings

The no-action letters provide market participants with increased clarity as to how certain aspects of their business activities, in particular the “bundling” or “unbundling” of payments for research and execution, can comply with potentially competing systems of regulations.

Originality/value

Practical guidance from experienced financial industry and investment management lawyers.

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Expert briefing
Publication date: 23 October 2017

MiFID II implementation and compliance

Details

DOI: 10.1108/OXAN-DB225286

ISSN: 2633-304X

Keywords

Geographic
Topical
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Article
Publication date: 28 August 2019

Fidelio Tata

Traditionally, full-service broker/dealers catering to institutional investors have bundled trade execution with investment research. Since 2018, new market regulation has…

Abstract

Purpose

Traditionally, full-service broker/dealers catering to institutional investors have bundled trade execution with investment research. Since 2018, new market regulation has forced broker/dealers to unbundle and to sell research separately. The purpose of this paper is to shed some light on the expected pricing of research.

Design/methodology/approach

A stylized model is presented in this study in which a monopolist fixed income, currencies and commodities (FICC) research provider faces a linear demand function and picks an appropriate price schedule.

Findings

It is shown that it is important to initiate the price discovery process using a low price and that some broker/dealers will not be able to identify a regulatory compliant price/quantity solution because their research-production fixed cost is very high compared to the research demand function they face.

Practical implications

There are three main findings from our model: pricing research at cost is not always possible; if there is a unique solution, an iterative approach only works when starting off with a low-enough initial price; and if there are two solutions, only the low-cost/high-volume solution can be discovered in an iterative process.

Originality/value

The results presented are important to broker/dealers about to discover the market demand for their FICC research publications on the back of the implementation of MiFID II. Having distributed FICC research for free in the past, they have no knowledge about the demand function (other than what is demanded at a price of zero). Because research publications are highly differentiated products, observing the pricing of competitors is insufficient. Iteratively gaining knowledge about the demand function using price adjustments and customer questionnaires becomes the most likely mean for discovering the demand function. It is important to initiate the price discovery process with a low price. Some broker/dealers will not be able to identify a regulatory compliant price/quantity solution because their research-production fixed cost is too high compared to the research demand function they face. Finally, it is shown that these broker/dealers with two possible equilibriums face difficulty in identifying the high-price/low-volume research equilibrium because of the non-converging nature of the iterative process.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 1
Type: Research Article
ISSN: 1358-1988

Keywords

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Executive summary
Publication date: 3 January 2018

INTERNATIONAL: MiFID II confusion will clear

Details

DOI: 10.1108/OXAN-ES227816

ISSN: 2633-304X

Keywords

Geographic
Topical
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Article
Publication date: 15 February 2013

Diego Valiante

The purpose of this paper is to provide a theoretical framework for the legal classification of trading venues in financial markets. Currently, there is no clear…

Abstract

Purpose

The purpose of this paper is to provide a theoretical framework for the legal classification of trading venues in financial markets. Currently, there is no clear definition of when a trading platform should be classified as multilateral or bilateral. This paper builds a theoretical framework that will allow regulators to define the border (with its regulatory implications) between multilateral and bilateral trading venues.

Design/methodology/approach

The approach used for this paper focuses on looking at the different trading models available in financial markets and analyzing their key features in order to bring up recurrent aspects that have helped to build the theoretical framework.

Findings

Multilateral trading facilities would not only be systems bringing together multiple interests from third parties, but those systems bringing together multiple interests with “no discretion” (ex ante rules) vis‐à‐vis membership, admission of products to trading, and matching of interests. All trading venues that do not meet these three key requirements will be falling under the bilateral trading classification, which implies the application of fiduciary duties, such as conflicts of interest rules and best execution. The paper then advances a proposal to solve the legal classification issue in the revision of the Markets in Financial Instruments Directive in Europe (MiFID). In effect, despite the claim that the Organised Trading Facility (EU) and the Swap Execution Facility (USA) would be equivalent categories, EU and US regulators, respectively, have taken divergent paths on how these venues will ultimately look.

Originality/value

The value of the paper is in its ability to provide a theoretical framework to something that has not been assessed in these terms previously. Today, only the SEC is trying, for the first time, to have a definition of when a RFQ model can be defined “multilateral”. This topic has been rarely discussed before in financial regulation, while it is extensively discussed in market microstructure (but on the market structure implications, rather than its regulatory and policy implications).

1 – 10 of 113