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The transition to the new MiFID II world

01 Feb 2018

The transition to the new MiFID II world“It was a good start”

  • Deutsche Börse’s Chief Regulatory Officer praises market players’ thorough preparation
  • Deutsche Börse gives an overall positive assessment of the transition to the new MiFID II world.
  • Adjustments will be necessary primarily due to Brexit.

Alexandra Hachmeister, Chief Regulatory Officer
“To sum it up: it was a good start. We are very happy, even though of course such a changeover cannot happen without a certain amount of friction.” With a view to 3 January, the day on which the newly formulated EU market directive (MiFID II) entered into force, Alexandra Hachmeister, Chief Regulatory Officer of Deutsche Börse, spoke of a “good process of coordination” between market players, stock exchange and regulators. “A successful start was in everybody’s interest, and together we made sure that was the case.” Asked about the possible friction, Hachmeister pointed out that Deutsche Börse had thoroughly tested the trading systems’ functionalities beforehand together with the market players: “Our market participants were all ready.” However, since 3 January, considerable data sets needed to be created for reporting. “We have some extra work to do together with the market players and regulators before things will run perfectly smoothly. But this does not come as a surprise to me.”
One worry voiced before the start of MiFID II turned out to be unfounded: namely that trading would be subdued due to uncertainty about the changes. “This is something we did not witness; trading volumes in the first ten days after the introduction of the new regulation was very stable compared to the previous year,” Hachmeister commented. This held true both for cash trading on Xetra as well as for the derivatives exchange Eurex.

Reassessing  calculations

According to Hachmeister’s assessment, the need for adjustments arises first and foremost from the United Kingdom’s planned exit from the EU in about 14 months. She cited calculating the liquidity of individual financial instruments, which currently takes into account London as Europe’s largest financial market, as an example. With Brexit, these liquidity assessments will need to be recalculated. “The need for adjustment is becoming very clear,” Hachmeister said. “I assume the regulators are already considering how this can be made to work.”

The question of liquidity is also likely to impact market making and best execution, she says. Hachmeister is convinced that “an adjustment will need to be made here, without however immediately changing the basic rules themselves.” As the United Kingdom will presumably be a third party in relation to the EU, decisions concerning equivalence will presumably need to be made in the near future.

With respect to possible unintended consequences of MiFID II and the question as to what extent this will require regulatory amendments, Hachmeister says: “The issue will be whether there is enough evidence. The necessary data will need to be collected first.” For some things there will no doubt be pragmatic solutions, she suggests, but for others changes to the law will be required. Another area that may require adjustments, she concludes, will be activities by dark pools, meaning trading platforms that are opaque. “The way MiFID II is constructed it should not lead to an increase in dark trading, but in fact strengthen transparent order flow. I am very optimistic that the outcome will be successful in this regard, but we will need to monitor things for the time being.”

According to Hachmeister, data capture thus far was going “well, essentially”, amongst other things because ESMA offers a “pragmatic solution” for the use of the legal entity identifier (LEI). “We  have to avoid de-listing instruments at all costs,” Hachmeister emphasises. “We are working hard to ensure that investors in Frankfurt continue to have access to one of the world’s largest ranges of securities worldwide.”

“Once MiFID II has been properly implemented by everyone, the markets will become more transparent, safe and stable,” is how Hachmeister sums it all up. The newly collected data will, she insists, heighten the level of transparency and boost investor protection. “MiFID II is an incredibly complex set of rules, but I am confident that it is the right one.”

By Stefan Schaaf, Frankfurt
The article was first published in the Börsenzeitung on 1 February 2018.

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