Invisage sponsored the Unbundling Uncovered Online last week. It was a virtual conference on investment research organised on 24 June by Substantive Research. The event
What you should know about MiFID II
Markets in Financial Instruments Directive, or MiFID II, was enforced on 03 Jan 2018. This new regulation is aimed at providing greater protection to investors across the spectrum of asset classes. MiFID II covers exchange traded funds (ETFs), foreign exchange, fixed income and equities. The MiFID II regulation is applicable on all sell and buy side companies in the European Union (EU).
Objectives of MiFID II
- The MiFID II regulation emphasises on the need for safety, transparency and efficiency.
- Curb the over-the-counter trading and capture most of the trade under regulated space.
- Through these regulatory changes, the EU wants to restore investor confidence in the market.
Does it matter to me?
MiFID II is very broad in its coverage – that includes almost all participants in the financial sector. The regulation is applicable on:Fund Managers
- Retail Investors
- Exchange Trading Venues
- Pension Funds
- High Frequency Traders
If you count yourself as anyone listed above, you fall under MiFID II regulation.
So, what do i need to do?
In a nutshell, separate research from trade offerings.
The new regulation demands that asset manager pay for the research that they use for their investment decisions. The regulators believe that in absence of such a separation, there is a conflict of interest that can adversely impact fund manager’s clients. These clients can be people with limited financial knowledge such as ordinary people saving through pension funds, or retail investing.
Traditionally, asset managers received research for free. This would include research in form of reports, phone calls, communication with research analysts. The research providers would simply absorb the cost of research under their trading fee. MiFID II wants to change that and bring more accountability. The change is to remove the cost of the research from trade costs. This is popularly known as un-bundling.
Why does it matter?
MiFID II gives regulators much more visibility in to the everyday activities of financial institutions. This visibility gives the tools necessary to spot irregularities and ensure investors are getting fair deals.
It is important that financial institutions educate their employees and update their existing systems to match the regulatory requirements of MiFID II. This also changes the nature of how research is shared by analysts with their clients. There must be a payment for each research.
MiFID II also doubles down on dark pools trading. Contrary to lit markets such as NYSE, LSE, the dark pools are private markets. In these private markets, the traders no not have to reveal the size and price of the trade beforehand. While there is merit in dark pools, MiFID II limits the total volume of trade at 8% for dark pools.
Meet regulatory requirements with Parity One
Our asset management platform – Parity One – gives you access to market data, cutting-edge analytics and ability to create model portfolios as benchmarks that can replicate research. Irrespective of whether you are sell or buy side, you can use Parity One to conveniently track the performance of any research. It takes few minutes to set up a portfolio, and after that the system can automate the function. You can also compare these benchmarks against other indices in the market or one of your own.
You can also use the platform to on-board your own custom data. We provide some alternate data as well to give you the competitive advantage.
Covid-19 has significantly affected the financial markets and shaken up the $13.8 bn investment research industry. Research volume has surged by 240% in response to Coronavirus