Implications of Brexit on the buy-side trading desk on both
sides of the English Channel.
Vincent Dessard: We keep monitoring this subject and we will be
vocal, addressing our views if and when it seems like it actually will
happen.
Looking from a bird’s perspective, non-equities products might not be
the primary target for the SI regime because:
•
The way they trade are different.
•
Non-equities are more frequently traded off exchange and/or
on larger tickets.
•
Non-equities are usually less liquid, requiring a different market
infrastructure to guarantee a higher probability of execution.
In the event of an SI regime being extended for fixed income, we will
seek to ensure that the use of waivers is duly protected.
Adjustments to equity venue operations under MiFID II
At the time we write this article we are still due to see ESMA’s
anticipated adjustments to broker preferencing in periodic
auctions. What progress and expectations do we foresee in this
subject?
Vincent Dessard: ESMA published a consultation on 9 th November
2018 with their calibration intentions for periodic auctions in
the preamble. EFAMA is currently working on a response to this
consultation which will be submitted by 11 th January 2019.
Are there any other regulatory activities that EFAMA would
like to highlight to the buy-side trading community?
Vincent Dessard: From my perspective the following capital markets
issues need to be highlighted.
In the detailed review of EMIR, we are working on obtaining the
clarification of the definition of “Small Financial Counterparties”, that
are subject to new simplified rules, and the co-existence of Category 3
(8 BN Euro or below) within the clearing obligation. In addition to our
effort, we would advise buy-side firms to reach out to their Treasuries
working on an alignment of definitions.
Lastly, on SFTR, we would encourage firms to review ESMA’s draft
RTS proposal from last year. We understand that there is l unlikely
to be any extension to the September 2020 deadline. Technically
speaking, we have already received a confirmation that the vast
majority of the fields and their description will not change. Therefore,
we would encourage every buy-side firm to start, if not yet done so,
the implementation of the requirements. There will be a “test period”
with sell-side obligations being applied as from March 2020 but (i)
some sell side may request alignment as from that day; and (ii) the
requirements applicable as from September are more detailed for
funds and asset managers.
Winter 2018
From a trading desk perspective, it seems that the majority of
traders expect to keep working from their current locations. There
will obviously be a duplication of MIC codes and incremental
administrative burden with additional contracts for trading
counterparties, for example, registering a new legal entity within
EU27 in addition to London. What other implications would you
foresee for the trading desk? How do you envisage the impact
on current regulatory activities such as the double volume cap
regime, fixed income bond transparency regime, trade and
transaction reporting and RTS28 post Brexit?
Vincent Dessard: This is a very difficult question to answer with
certainty, as it depends on the treatment given to all aspects
of equivalence for financial activities which is part of the entire
negotiation.
From my perspective, assuming ceteris paribus, the UK will be
operationally equivalent from day 1. However, this does not mean
that equivalence will be granted from day 1. The messages I
have heard from both sides of the Channel are at least showing a
willingness and intent to grant equivalence from day 1 if possible.
I anticipate a number of challenges of which one relates to the size
of the counterparties and the second relates to the recognition of
liquidity in third country markets due to the tick sizes regime for
equities.
1. On the size of the counterparties, as the book will have to be
partly split under additional licensed entities, the counterparty
risk analysis will be more difficult to perform or might need to
be adjusted as the split might set those firms in a lower risk tier.
2. On the recognition of liquid assets, with the UK becoming a
third country, the volume of transactions used in MiFID II, RTS
11 tick size regime will need to be modified. As we already
know, the tick size debate is not yet resolved. Depending on the
outcome, there may be a large number of securities that would
become classed as less liquid or where NCAs could force the
qualification of liquid assets. From a trading perspective, I am of
the opinion that this is to the detriment of market transparency.
About EFAMA
EFAMA is the representative association for the European
investment management industry. EFAMA represents through
its 28-member associations, 62 corporate members and 25
associate members more than EUR 23 trillion in assets under
management of which EUR 15.6 trillion managed by more than
60,000 investment funds at end 2017. Close to 32,000 of these
funds were UCITS (Undertakings for Collective Investments in
Transferable Securities) funds, with the remaining 28,300 funds
composed of AIFs (Alternative Investment Funds).
More information: https://www.efama.org
Meet Vincent Dessard at the 7 th annual
Alpha Trader Forum Global Summit on
6 th & 7 th February in London.
www.buysideintel.com
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