Some concerns over the new EU proposals.
Just back from a two week trip around Asia and Australia that
took in dark pool seminars in Hong Kong and Singapore and
attendance at the FPL conference in Sydney. In my absence, it
seems like the Eurocrats in Brussels have been busy as the
official version of the widely leaked MiFID II proposals came out last Thursday.
I won’t take all the themes apart right now but,
just for starters, here’s my take:
Transparency – this has been one of
the single biggest failures of MiFID I – why then is
Barnier trumpeting that the Commission will extend this to
other asset classes when they haven’t even got it
right for equities yet?
More competition in derivatives trading
– I wonder if the Commission understands that
exchange-traded derivatives are created and owned by the
exchanges that list them (in complete contrast to the world of
equities). Is the commission seriously going to introduce its
own standardised contracts across Europe? If so, who will pay
for all this and why would any derivatives exchange have any
incentive to innovate if it could not then benefit commercially
from its IPR?
Tougher rules for OTC trading – the
traditional 'call around’ or OTC market has
existed for just as long as the exchanges themselves and
facilitates the execution of large or odd-shaped orders. What
has happened is that the phone and the Filofax have been
replaced by computers and the regulators mistakenly suspect
that this, somehow, takes volume away from lit markets.
Automated trading assault – given that to
date no one has successfully defined HFT, it’s
hard to see how the Commission intends to regulate it. The
majority of high frequency activity is simply electronic market
making equivalent to the traditional jobber of old. Admittedly
they are not making liquidity available in size, but hey-ho,
welcome to today’s markets.
Position limits – as my friend John
Lothian has often maintained, the job of regulators is to
regulate markets not prices – see his recent open letter on the subject.
Consolidated tape will be commercial
– commercial equals choice equals
different. How will the market know which of the commercially
available consolidated tapes to follow (just like now)?
The contrast with ASIC (the Aussie regulator)
couldn’t be greater. Rather than the
ready/fire/aim approach of Europe,ASIC is stepping through the
difficult process of creating a multi-market infrastructure in
a calm, non-politicised way that seeks to understand the big
picture and avoids tampering with the details unless absolutely
necessary. On this point, it was interesting that the theme I
was given for my presentation at the FIX conference in Sydney
was "What can Australia learn from the rest of the world?"
Maybe the title should have been the other way round.
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