MiFID II Opportunity For Buyside Dealers
Huw Gronow, head of dealing at Newton Investment Management and co-chair of FIX Trading Community’s EMEA investment management subcommittee, said new regulations in the European Union offer a good opportunity for buyside dealing desks to add value to the investment process through using execution data.
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Gronow spoke on a panel last week at the London regional briefing for the FIX Trading Community, the non-profit industry body which sets technical standards for global trading.
MiFID II will strengthen the requirement for firms across the European Union to evidence the steps taken to achieve best execution across a range of asset classes, not just equities, from 3 January 2018. In October FIX released of its recommended practices for best execution reporting required by MiFID II after 18 months of consultation with a range of market participants.
Gronow said: “MiFID II presents a good opportunity for buyside dealing desks to add value to the investment process through using execution data.”
He continued that Newton Investment Management will be making choices on who to use for execution in the New Year once empirical data is available as a result of MiFID II.
“There will be a surprising number of new entrants, who will be in a better position to cope with liquidity conditions, and we think we will see an immense change in the execution landscape,” added Gronow.
MiFID also requires the separation of payments for research from trading commissions in order to increase fee transparency. Newton Investment Management is amongst the many asset managers who have decided to pay for research themselves, rather than passing the cost onto clients.
“MiFID II has been a voyage of discovery,” said Grownow. “We are unbundling completely, and for the first time we will see discrete competition for execution and for evidence of sufficient steps to achieve best execution.”
FIX released of its recommended practices for commission unbundling as required by MiFID II last month.
Rebecca Healey, co-chair of the FIX Trading Community’s EMEA regulatory subcommittee and head of EMEA market structure and strategy at Liquidnet, said on the panel last week that unbundling will have a “monumental” impact on execution in terms of selection criteria and the data required to quantify execution.
She said: “The control process will be front and centre for ensuring data accuracy, as well as analysing, tracking and monitoring execution.”
MiFID II only applies to the European Union but large US asset managers have European operations and there were concerns that asset owners were likely to want greater fee transparency on a global basis. However, US federal regulations requires US asset managers to use client money to pay for research. As a result the US Securities and Exchange Commission issued guidance in October that it will not punish firms for complying with the MiFID II unbundling requirements.
Healey added: “I recently visited the US and talked to 84 asset managers who may not all need to be MiFID compliant but who recognized that they need to be MiFID aligned in order to meet client expectations on unbundling and execution. This will lead to demands on technology to drive further innovation and accountability.”
Another panellist said that it easy for the buyside to try out new brokers and unbundling will lead to that process being accelerated. The panellist said: “Brokers can compete on a level playing field due to unbundling and there will be winners and losers.”
In addition the FIX panel agreed that January 3 will only be the start of changes under MiFID II. More work will be required as the European Securities and Markets Authority releases further guidance and reviews the consequences of the regulation once it is operation.
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