2018 Plato Debates: Key Market Trends and Challenges in 2018 and beyond
Regulators Fireside Chat
Udo Franke, Head of Division, Stock Markets and Securities, German Federal Ministry of Finance
Tilman Lueder, Head of Securities Markets at the European Commission
Kay Swinburne, MEP, Vice-Chair European Parliament Committee on Economic and Monetary Affairs
Stephen Hanks, Head of Market Policy, FCA
Nej D’Jelal, Head of Electronic Equities & Quant Prime Services Product, EMEA at Barclays [Moderator]
Held in the prestigious Simpsons on the Strand, this fireside chat assessed the regulator’s views of everything from MiFID II to Brexit.
The panel gave the audience an inside view of the issues that have affected the markets, and what to expect in the year ahead.
Key Questions and Answers
After the bedding-in period, has MiFID II met your expectations?
“On the whole we would consider MiFID II to be quite satisfactory up to this moment.”
“From a regulatory perspective – yes. We hoped that we would have a situation where market structure and transparency reforms would not disrupt trading. This is the case. There are some questions about market quality – but overall, there has not been any significant disruptions.”
“When it comes to dark trading and the double volume cap, we didn’t know what the precise percentages for LIS and systematic internalisers would be. This was the ‘news’ resulting from MiFID II in terms of the way the ways that business split out.”
“I would concur that the double volume cap was the most significant event under the new MiFID framework as this led to a change to periodics, LIS and SIs. But was it successful? The jury is still out on the derivatives and trading obligations.”
“So far, MiFID II has worked well because we [regulators] have the necessary powers.”
“The spectacular increases in the use of Systematic Internalisers are probably exaggerations as there is a lot of technical work that has not previously been reported which now appears in an SI grid. It does offer a service which is very attractive for block trades.”
“LIS has probably increased in MiFID II vs. MiFID I – we’re legislating for this, including tick sizes as there’s a lot of information on this front.”
“The jury on the share trading obligation is still out.”
“As a legislator, we cannot tell what the impact of MiFID II is until we have a year’s worth of data. While it’s good to hear that the early implementation period (and I’ve had less complaints – so you’re probably a bit more comfortable with the new regime), much of this data is still very new.”
“In the time between the implementation of MiFID II and today, the marketplace has changed significantly. Would the marketplace have stayed the same without MiFID? Well – we cannot say. You cannot compare apples with pears.”
“There is an additional problem. The original teams that did this (European Commission, Parliament, Council etc.) no longer exist. There is no institutional memory who started this work. After March, there will only be one person who was in the room when the first negotiations were first done. It’s difficult to understand how to improve.”
“We need to make sure that the data is good enough to ensure that the next series of MiFID are ready, especially since the people who are making changes to MiFID III are not the same group who made the changes to MiFID II. I’m concerned about the lack of continuity.”
Is it reasonable to prioritise the concerted effort to make a consolidated tape? It will allow us to normalise and understand, on a level playing field, where executions are taking place and help on a post-trade basis.
“When you rely on data, things are always more complicated than they appear. As we saw with ESMA, the double volume cap caused problems since there is an issue aver the data.”
“If we are waiting to sort out the consolidated tape, I fear we will be here for a very long time – especially given the complexity and the variety of different aspects on how the work should be done. It would take a significant amount of time to find something that is (a) politically acceptable (b) good for the market.”
“We learned a lot when we looked at the US. The debate we had about the double volume cap would – in my opinion – wouldn’t be as pronounced if we had a ticker and a live transaction of every trade.”
“We could cut out a lot of this conversation by having a live ticker tape. It’s good for the academics, regulators and traders. We wouldn’t have such a big debate on pre-trade transparency.”
As you foresee the possible scenarios of Brexit, what worries you?
“Brexit disruption might jeopardise stability. The most disturbing area is OTC and clearing. Solutions need to be found in the short and long-term. Regarding OTC clearing, it’s on the agenda of the European Commission.”
“Brexit is crucially important for financial stability for the EU27. There need to be well equipped tools to tackle these risks. Business is shifting to the EU27. This is market-led shift and it’s very welcome from a European point of view.”
“The relocation isn’t specific to just the UK. It applies to everyone. A level of confidence needs to be built up. This is the biggest cause of concern that I have received on my desk, as even the EMEA review has become highly politicised.”
“The primary reasons behind reforms like MiFID II have, on an institutional level, been forgotten. Why would you need to go in – the rulebook has been agreed beforehand. Why would a central bank need to intervene?”
“It concerns me that, globally, people need confidence that the rules that have been agreed in peacetime work in crisis times too.”
“Market participants are making plans to mitigate and manage a hard Brexit. There will be cost and complexity – and questions about the pragmatism about the problems that arise from the problems.”