Clearing the fog which characterises much of today’s measurement of trading performance is a responsibility few seem to want to shoulder. Exchanges think it’s the regulators’ responsibility and that the buyside should speak out more; the buyside believes the sellside and data providers should do more; almost everyone blames the Markets in Financial Instruments Directive (MiFID). Ruth Hughes Liley reports.
MIFID MAKES END INVESTOR MISS OUT
Two years down the line, the Markets in Financial Instruments Directive (MiFID), the European Union directive which standardised the regulation of investment services, has certainly been found wanting in the area of post-trade reporting. MiFID did not make it mandatory to publish the venue where shares were traded, even though the directive allowed for creation of a raft of new exchanges. The directive said transactions had to be made public, but did not insist on how those trades should be made public. Moves are afoot to ensure that the next iteration of the directive, MiFID 2, as it is known, addresses these outstanding issues. “It is not necessarily the regulators’ fault,” says Clive Williams, T Rowe Price’s head of trading, Europe. “If you look at the growth of trading over the last two years, I do not think many people could have foreseen how the current situation has developed.”
MiFID allowed the creation of multi-lateral pan-European exchanges in direct competition with the traditional exchanges. It also promoted competition between the exchanges and new reporting venues such as Markit BOAT. Lower fees allowed more frequent trading, as costs per fill came down, explains Andrew Morgan, Deutsche Bank’s European head of electronic trading. “The sheer quantity of data to run post-trade reports pulling in all quotes and trades is huge,” he says. “For customers who are more active, the number of prints has increased as the cost of trading has come down. We are getting smaller and smaller trades from cost-sensitive, high-frequency participants, plus the increased use of algorithms, slicing large orders into smaller sizes, is increasing the data needed to run post-trade reports.”