Its mind-boggling complexity is enough to make any banker groan. Even after a year-long delay, precious few experts fully understand the Markets in Financial Instruments Directive II, Europe’s biggest financial markets reform in almost a decade. It affects a broad swathe of institutions, from banks and asset managers to exchange operators and pension funds. Dubbed MiFid II for short, the directive came into force on Wednesday despite widespread confusion about its implementation, and how it will dovetail with regulations in the US.
On the face of it, this overhaul of a 2007 directive promises a lot of improvements. The new rules should make trading platforms for stocks, bonds, commodities and derivatives more transparent, allowing investors to easily check whether they are getting the best deal. A wider range of trades must be reported to regulators, with data to be scanned in order to spot market abuses. Among other key changes, and in a belated nod to technological progress, telephone-based trading will be replaced with electronic platforms in bonds and off-exchange derivatives. And consumers should immediately see financial advice standards rise.
The catch is, all this won’t come cheap. Analysts estimate that MiFid II will cost $6 billion (€5 billion) to implement in the first five years. Although the new rules should increase competition and lower consumers’ fees, particularly in the more obscure fixed-income and derivatives markets, the burden of compliance will favor the larger firms, which can spread the costs over more transactions.
Jörg Kukies, the co-head of Goldman Sachs in Germany, nonetheless said it was too early to guage the impact on day-to-day business. “We refer to ‘unknowable unknowns’ that only emerge gradually in practice,” he told Handelsblatt in an interview.