MiFID is failing to meet its goals, according to Richard Balarkas, CEO of agency broker Instinet. "I just think MiFID is haphazard and European regulation is rather lacking," he told Waters. "You read a lot in the papers about thriving competition and how great the new MTFs are, but it has made no difference to clients across Europe."
He argues MiFID’s requirement that every broker supply a comprehensive execution policy is not being adhered to. “The cunning plan on paper is that every broker writes down how they operate so the client is fully informed and can make an intelligent decision about who they want to work with. However, many execution policies aren’t worth the paper they’re written on and contain little to truly explain what happens to order flow.”
Some European regulators have been slow in enforcing new policy, he adds. “In my experience, new regulation – even if it’s pan-European – has been adopted to only varying degrees across the European jurisdictions. As a rule, the UK FSA is pretty diligent, but elsewhere it hasn’t always been the same story.”
Balarkas also voices concerns over the future of the alternative exchanges. “The MTFs are great and injected a new wave of competition into the markets, but sadly they don’t get the amount of business they deserve,” he says. “The real shame is that the new guys who kicked it off may not be around to reap the rewards. At present they are likely to remain unprofitable for the rest of 2009, so some will inevitably throw in the towel.”
He suggests that the MTFs could well have disappeared from the market this time next year leaving the exchanges to compete for each other’s share trading. “So far, the major exchanges have done nothing at all to compete with each other, but it is going to start to happen. If they get in on the game, then their better market share and capitalisation may sound the death knell for the MTFs.”
Comments (1)
Whilst Richard makes some good observations about the lack of a consistent adoption of MIFID and the potential detriment to MTFs, there's no denying that the industry needs competition. The suggestion that MTFs will disappear and exchanges will win out implies that the industry is happy to accept disadvantageous terms from the monopolies, which of course it is not.
For example, the increase of MTFs has forced the LSE to change it's pricing structure to be more relevant to the new world. Similarly, other exchanges are also addressing their pricing structures. The relative success of early entrants is encouraging new players to throw their hand into the mix. In the short-term, we’ll see some players being squeezed out of the market. However, as history has demonstrated in the US, the ECNs, and Alternative Display Facilities (ADFs) are here to stay as they continue to gain more market share. Their success stems from the continual innovation of business models, pricing models and technology which all play a part in managing complex and dynamic liquidity.
It’s really too early to count any MTF out and they’ll continue to grow or emerge as long as the industry believes in competition.
Posted by Dhiren Rawal | April 30, 2009 6:49 PM
Posted on April 30, 2009 18:49