Firms must change trading and post-trade processes in response to Europe's Mifid II
By Matthew Johnson, manager of EMEA
industry relations at DTCC
Through the Markets in
Financial Instruments Directive (Mifid II), regulators are
seeking greater transparency across the trading process, part
of which may entail separating the costs of trading activity
from research spend, in order to gain insights on the actual
cost of the research. As a result, firms are looking to make
changes to their trading and front-office operations, as well
as their post-trade processes.
Historically, buy-side firm dealing
commissions have been bundled with the cost of research into
just one payment. Under Mifid II, however, asset managers could
be required to pay for the research separately and directly
from their own P&L, which would remove any conflict of
interest between execution and access to research. With the new
arrangements, buy-side firms would set up separate client
accounts that would be solely used to pay for research within a
strict, pre-agreed budget. This 'unbundling’
requirement was clarified in a Delegated Act published by the
European Commission back in April 2016.
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