Money managers and investment associations across Europe are weighing in on how MiFID II should be revised when it comes up for its first review in March, saying the regulation has fallen short on several objectives.
The Markets in Financial Instruments Directive II, which took effect on Jan. 3, 2018, was aimed at delivering transparent data on equity trade flows, volumes and prices to a range of investors in an "easily accessible, fair and non-discriminatory way," according to the European Commission legislation. But industry sources say the regulation has produced detrimental consequences for money managers bound by MiFID II regulations, including inflating the cost of data harvesting for mandatory reporting of how they met their execution policies to clients and beneficiaries, and some unnecessary reporting obligations for institutional investors.
Aside from having to unbundle investment research, MiFID II required financial services firms — money managers, brokers and market makers — to improve how they execute trades to best protect the interests of their investors and share the information on costs and fees with these investors through mandatory reporting obligations.
But to achieve that, Europe's financial services watchdog, the European Securities and Markets Authority, said in a July 12 consultation report it found that since implementation of MiFID II, global managers have had to consolidate price and volume data of equity instruments from multiple sources to be able to report back to investors on the executed trades across Europe in line with the MiFID II regulation.
Having to consolidate data over time could lead to pricing smaller brokers and money managers out of the market, sources said, as the costs for establishing connections to all exchanges to get the data is considerable, ESMA warned.
Ingrid Holmes, Hermes Investment Management's head of policy and advocacy, London, said money managers have been required to spend more of their budget to obtain market data and change how they work operationally. "There is discontent with how (MiFID II) was implemented," Ms. Holmes said, adding that "it hasn't achieved all of the outcomes that it set out to."
The ongoing issue of cost calculation of market data is particularly problematic, Ms. Holmes said.