Enhancements to the Markets in Financial Instrument Directive (MiFID II) will take effect on January 3, 2018.

How will MiFID II regulation impact your business?

Regulation goes global

The European Union (EU) is setting a new standard for financial markets through MiFID II. Many believe this regulation will be the most important in recent memory — it will fundamentally change the relationship between buyside and sellside firms.

MiFID II regulation will also reach far beyond the EU, because today’s markets operate across borders and jurisdictions. As affected firms adopt MiFID II–compliant standards and practices, they will likely do so across their entire organization or risk internal contradictions and misalignment.

Of the areas that MiFID II addresses, it is a combination of transparency and investor-protection requirements that tackle the buyside-sellside relationship.

Determining the true scale and value of research

At the core of these changes from MiFID II is the question, what exactly do investors pay for?

Traditionally, client commissions have gone from buyside to sellside firms through “bundled” payments, which combines the cost of trade execution and research services. MiFID II will require a distinct separation between not only execution and research, but also different pieces of research — this is known as unbundling.

In an unbundled world, splitting execution costs and research costs will increase price visibility on research and an opportunity for true price discovery if systematic processes exist where buyside firms are able to:

  • Justify the research they choose to consume
  • Reconcile all interactions their brokers believe they have provided
  • Value all interactions that have been delivered by the sellside
  • Appropriately review and value all interactions consumed, to ultimately justify payments

While sellside firms will need to:

  • Provide explicit prices for the research services they offer, from analyst papers to one-on-one meetings
  • Ensure all interactions delivered are evaluated by the buyside

The need for a comprehensive solution

To promote transparency and greater investor protection, MiFID II brings a need for systematic tracking, reporting, and evaluation of research services.

However, relationships between buyside and sellside firms have historically been just that — relationships. Hundreds of firms interact at every level and across different departments, making it difficult to gather relevant data and ensure a clear audit trail. With only months to prepare, the market needs a capable and comprehensive MiFID II–compliant solution.

With a growing network of 250+ investment firms to 150+ sellside partners, Dealogic Connect can help clients get ahead of MiFID II. It offers an aggregated corporate access calendar, reconciliation and evaluation capabilities (tracking and vote), electronic orders for IOIs, and more.

See how Dealogic Connect can help you prepare for the heightened compliance environment or click here to listen to our experts.

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For more information about MiFID II, please see the consolidated version of the law or visit the European Securities and Markets Authority (ESMA) website.