US faces ‘mad dash’ to adjust to MiFID with two months to go

Bloomberg

For thousands of brokers, traders and money managers based in the US, time is running out. A shock wave is about to emanate from Brussels, the capital of the 28-nation European Union. That may as well be the dark side of the moon for some toiling away at financial firms in the US A sweeping set of financial regulations dubbed MiFID II will take hold on Jan. 3, affecting everything from investment research to the booking of transactions. Most have heard of it, but they haven’t all fully addressed what will likely become a seismic industry shift.
“There will be a bit of a mad dash,” says Mike Stepanovich, who has spent months helping firms fine-tune their technology to value the research they consume and be MiFID compliant. Stepanovich, president of enterprise services at Visible Alpha, said it’s an arduous process and many firms won’t be ready.
While the Markets in Financial Instruments Directive won’t be rule of law in the US, it is almost certain to transform the way the trading business runs in both regions, industry participants say. While US regulators have taken steps to mitigate some of the impact, MiFID’s reach will still be felt because it’s easier to meet the highest global regulatory standards than to juggle differing regional benchmarks. Key pillars of the rule include stopping banks from using free research as a lure for trading commissions, and requiring financial firms to prove they’re getting the best deal for customers. EU regulators have yet to make key decisions surrounding dark pools, rules clashes with foreign markets and even collecting client data. For example, analysts say US investors will be blindsided when learning MiFID rules require them to provide passport numbers when trading European securities. That part of the law is even seldom-discussed among EU clients.
“There are still a number of unknowns,” said Joanna Fields, CEO and founder of Aplomb Strategies Inc., which advises financial firms on market structure and regulatory changes. “Firms will have some potentially tough decisions to make before January.”
MiFID’s size and complexity have driven UK regulators to say they won’t be too hard on firms not complying. The Securities and Exchange Commission also kicked the can down the road, saying last week it would give a 30-month reprieve to firms stuck between MiFID and US rules on research fees. Days before SEC announcement, Allianz Global Investors CEO & CIO Andreas Utermann criticized what he called a surprising lack of guidance from American and Asian regulators this late in the game.