So, if you’re planning to attend any kind seminar on what you need to do for MiFID II over the next few months, forget it and go to the movies instead. You’re simply too late and whatever plans you have (or have not) put in place will just have to do as there are only 6 months left to go. The more important questions concern how regulators will interpret and enforce the new rules and, crucially, which business models will thrive in the new environment? As to the first, I think there may be a glimmer of hope and we can expect to see more carrot than stick. The thinking behind this is that ESMA wants to change behaviour and market structure rather than put everyone in jail. Having said that, there is nothing like a screechy headline trumpeting a compliance failure to hold the industry’s feet to the fire.
But for all the gazillions of pages written about MiFID II it really just boils down to one thing, transparency, and transparency creates opportunity for those prepared to seize it. The dismemberment of BCNs is a good example as the resultant SIs are now free to focus their liquidity provision in new ways, quite possibly by circumventing traditional venues entirely. For those that can navigate these new “venues” there are great opportunities to offer better execution outcomes, especially when this is combined with a smart view of block liquidity. Unbundling means that if you truly are good at research (or execution) then you will be able to make money more readily from these services. And, as the international implications propagate, these opportunities will become global.
Other industries such as music, consumer finance, fast food and transportation have or are going through the same transparency revolution. This requires participants to take a long hard look in the mirror and be clear about exactly where and how they add value. These positives then need to be articulated and amplified by technology and, in particular, through the combination of automation and digitisation.
This is never an easy thing to do, but those firms that can get this right in Capital Markets will look back at MiFID II as the best thing that ever happened to them.