Under Mifid I, pre-and post-trade transparency obligations were limited to trading in equities, but under new rules this will be extended to include: shares, depositary receipts, exchange-traded funds, certificates, bonds, structured finance products, emission allowances, derivatives; trading on any EU trading venue.
A key point of contention is over whose obligation it is to carry out reporting on trades. Previously, the regulator left it up to the parties involved in a transaction to agree whose responsibility it was to report; sell-side firms usually assuming this duty.
New rules instead dictate that the buy-side is responsible for reporting, unless the buyer is a “systematic internaliser” (SI). In all other instances, the buyer must take on this obligation.
Needless to say, a new cottage industry has sprung up providing solutions to assist with a manager’s reporting requirements.
Research – an insight into the cross border impact of regulation
Most disruptive for the industry as a whole is the move to ‘unbundle’ the cost of brokerage research and clearly defining the amount of this fee transferred onto investors.
Under the new model, research provided by a third party to an investment firm must be paid of out of either the firm’s own pocket or a research payment account (RPA) funded by specific charges to investors.
In many cases, but by no means all, asset managers are choosing to absorb research costs. There have been a number of reports that a potential unintended consequence may be these changes will lead to a dramatic reduction in the production and consumption of research and squeeze mid-sized funds.
Much of my year has been spent collaborating to develop industry guidance to address the cross-border impact of the Mifid II rules on research and no doubt the discussion around cross-border impact of regulation shall continue for a long time coming.
Monica Gogna is financial regulation partner at Dechert LLP
