Countdown to January: the Double-Edged Sword of MiFID II

MiFID II continues to loom heading into year’s end, with many seeing the implementation of the regulations as a double-edged sword. For the financial services industry, the new legislation will herald unprecedented Compliance measures and rules for venues. The new rules could also lead to the loss of thousands of jobs in the industry.

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The primary directive of MiFID II will be to support greater transparency across derivatives and futures markets, among others. The reporting or disclosure of additional components, such as research spending, are also expected to help improve these measures. What is unclear however is how industry venues will react to this new regime, and what the consequences will be in terms of spending, personnel, and trading volumes.

Job losses

It is plausible to assume that the launch of any new regulatory regime will create short-term turmoil and periods of adjustments. However, the most immediate may be the gutting of research spending from banks. According to the McKinsey & Co. study, new regulations in Europe stifling free research will lead to the axing of hundreds of analyst jobs as banks plan to trim upwards of $1.2 billion in research spending.

This estimate was echoed in a survey from Greenwich Associates, which also saw a 7 percent drop in commission spending for European firms and 5 percent for US ones. Perhaps more problematic is the ability of US firms to sell research to their European clients given new the constraints, per a Bloomberg report.

Given the impact of demand and a premium for publicly disclosed research, the number of asset managers may also take a hit with MiFID II’s implementation this coming January. This may be the case in Europe, with southern Europe perhaps feeling the worst of this impact. Additionally, portfolio managers will be facing additional barriers, namely in regard to their classification as ‘product distributors’.

London not feeling the love

In terms of trade volumes, the one locale poised to lose the most business is London. After last month’s round of exodus plans announced by lenders in the UK capital due to Brexit , the city could cede business to other global hubs. One reason for this is to avoid having to deal with multiple regulatory regimes, a problem for many firms.

While many European venues, particularly in the derivatives industry, have been hoping for a delay regarding MiFID II, it seems unlikely that the date of January 3 2018 will be moved. Rather, venues are forced to step up their efforts towards compliance with the new laws, with some banks even toying with the notion of making MiFID II their global standard.