Buy-side Perspectives Issue 3 - Page 14

to achieve alpha and boost efficiency. The more radical elements within this trend sometimes have individual traders trading across multiple asset classes. However, Deutsche Asset Management has taken a fairly cautious approach that emphasises the need for specialisation, within a context where it is understood that broadening knowledge to nearby relevant asset classes may be beneficial. “I don’t really see a time when you’re going to have fixed income traders jumping between equity and fixed income, I do think trading requires some specialisation,” said Gibson. “But within the FI asset types, having the ability to trade rates, bonds and FX is a bonus.” Aside from shifting market conditions, relationships and expectations, one of the major challenges facing the buy-side today is the European Commission’s MiFID II legislation, the delegated acts of which were released earlier this month. While MiFID II is usually seen as part of a wider drive towards pan-European harmonisation, there are those who point out that there could be some unintended consequences, and even some serious complications. Because MiFID is a directive, it still has to be transposed into national law by each individual country in the European Union. In a worst-case scenario, that could mean differences in interpretation result in different sets of rules in each of the 28 member states. “The national regulators don’t intend to collaborate in implementing this MiFID II regulation into national law, and therefore there’s not going to be one approach,” said Gibson. “So not only do we have 14 The Buy-side Perspectives | Issue 3 | April 2016 to deal with the single most challenging piece of legislation the industry has faced, the fact that it’s going to be taken up by each state autonomously and interpreted differently means that in the worst case scenario we’re going to have to figure out how to implement it across borders. Our concern would be that whatever the industry puts in place may not be deemed to be sufficient to meet that regulation.” In addition, the rising cost of new regulation could have other side-effects, including consolidation in the market – a result that seems unlikely to be in line with what the European Commission had originally intended. For example, Gibson highlights the unbundling of payments for research and execution – a move that was intended to drive up transparency and benefit the investor. One of the effects of this is that in theory, a much smaller asset manager now pays the same for services as a giant fund worth billions. There are tentative signs that the industry may be moving towards a more collaborative approach, as new initiatives emerge for trading based on a utility model where applicable, such as in areas that do not necessarily provide a direct competitive edge. But it remains to be seen what the final impact of regulation and market structure change will be. Perhaps the future holds further examples of buy-side cooperation and shared initiatives that will ultimately benefit the end investor. “On the trading desk we need more collaboration between buy-side firms and between buy and sell side,” said Gibson. “There are a lot more initiatives where everyone is discussing the same challenges. We all have one objective and we all want to be compliant at a nationa [