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 [