“ This , along with the best execution reporting regime – which does not distinguish between unexecuted RFQs and actual trades – also has a potential risk of exposing sensitive risk positions to the public , which could further damage liquidity .”
WRONG APPROACH Liquidnet ’ s Jonathan Gray said regulators have taken the wrong approach to fixed income rules so far .
He said : “ The FCA could think it works like equities – if there ’ s a price on the screen then that ’ s a firm price , but it doesn ’ t work like that in fixed income .
“ When you send a request for liquidity you are showing your hand , and it ’ s information leakage . You ’ ve given something up for potentially no reward or gain , and the market impact of that could go against you .” The FCA declined to comment . Lyxor Asset Management ’ s Jean Sayegh said he thought that regulators had been guilty of “ taking an equities approach to the fixed income rules .”
He said : “ We are obliged to seek additional tools to completely comply with the new regulation .”
At The Trade ’ s specialist MiFID II event in Stockholm , Elina Yrgard , senior legal counsel for European affairs at Nasdaq , detailed the discussions she has
IT IS ABOUT CALCULATING WHICH INSTRUMENTS ARE SUITABLE FOR TRANSPARENCY AND WHEN THE RULES SHOULD APPLY .
ELINA YRGARD , SENIOR LEGAL COUNSEL FOR EUROPEAN AFFAIRS AT NASDAQ
held with ESMA on MiFID II . She said that the main issue is around how liquidity is calculated .
She said : “ The European Commission wanted less transparency , but ESMA wanted to increase it . ESMA ’ s new draft says the rules are to be phasedin . It is about calculating which instruments are suitable for transparency and when the rules should apply .”
Yrgard ’ s view is shared by many , highlighting the importance of the issue .
Santander Asset Management ’ s Mark Winter said regulators must “ rethink the text of these rules .”
He concluded : “ It will not work the same way for equities and it could be a naive attempt to impose a ‘ one size fits all ’ logic . The buy-side is trying to be more vocal about this and raise the profile of this issue .”
The Investment Association ’ s Singh-Muchelle said that the proportion of bonds that will be determined liquid under MiFID II and will be made pre-trade transparent is a cause for concern .
He said : “ The bigger issue is the fact that , following the proposed phase-in , around 90 % of traded volume for sovereigns and 25 % of corporates will be subject to pre-trade transparency .
“ The system being implemented under MiFID II is more ambitious than other jurisdictions , and it ’ s likely to have unintended consequences .”
It is understood numerous trade bodies have raised the issues of fixed income rules under MiFID II to several regulators , but with no indication that those regulators are thinking of changing course .
Many say the rules have now been ‘ set in stone ’ and a further delay to implementation is highly unlikely .
Nasdaq ’ s Yrgard explained the rules are likely to go ahead as planned and will only be considered again by ESMA under MiFID III .
She said : “ It ’ s very unlikely to be further delayed . Once the rules surfaced there was interest in delaying it , but many questioned whether this would ruin the progress so far and politicians would have to start over . But even those people agreed something needs to be finalised and put in place .” l
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