The new Markets in Financial Instruments Directive (MiFID) came into effect last week and market participants expect countries such as Poland, Portugal and Spain, which have yet to fully adopt the reforms, to feel the greatest impact.
MiFID, which took effect on Nov. 1, creates a single securities market standard across the 30-country membership of the European Economic Area, a jurisdiction that includes the EU, as well as Iceland, Liechtenstein and Norway. MiFID replaced the Investment Services Directive (ISD) and will serve as the foundation for the 42-measure Financial Services Action Plan for building investments, by encouraging competition through greater investor protection and encouraging easier cross-border trade.
Otherwise, securitization market pundits are predicting that the new directive will have no immediate impact on the securitization market. In another six months, speculates a RMBS analyst at a London-based investment bank, the City will begin to see more action come its way, as investors become keener to go with MiFID-compliant organizations, based on the greater protection offered by the directive.
Such protection "includes new pre- and post-trade transparency requirements for equity markets; the creation of a new regime for systematic internalizers' of retail order flow in liquid equities; and more extensive transaction reporting requirements," according to the Financial Services Authority (FSA) which is tasked with overseeing MiFID in the U.K. Indeed, one of the provisions of MiFID includes home state regulation, whereas previously, under the ISD, a securitization would be regulated in the state in which it generates. For example, a MiFID-authorized firm in Edinburgh can invest in German covered bonds and expect regulation to now be directed by the FSA as opposed to a German regulatory body.
While the current market crises has heralded calls for more regulation, MiFID was in fact derived almost a decade ago, in the weeks running up to the launch of the continent's first single currency, the Euro. What started as an ideological concept at the European Commission - one currency, one, safe market - MiFID is now a reality, and not without its share of critics who mainly see it as yet another pricey regulation, with little bite.
"Of course, we are MiFID compliant, in fact I even took a course on MiFID last year," said an analyst at a London-based investment bank. "Ask me what that means, ask me if I even care, and I will tell you I'm not even sure what MiFID is, or what it will do for Europe other than cost each bank nearly a billion pounds to implement it."
The research and advisory firm, Celent put MiFID impact into a clearer picture by estimating that the three largest EU jurisdictions, France, Germany, and the U.K., will "surface over 100 million additional trades annually," according to researchers. "Spending will increase as well, but at a slower rate: from GBP38 million ($54.8 million) yearly to close to GBP50 million."
The Celent researchers predict that MiFID will increase competition in a way that favors banks with larger pools of stable liquidity and may even squeeze smaller players out of the market. Further, "the potential for data fragmentation will make it more difficult to get a consolidated view of the market," added the researchers.
However, one source at Standard & Poor's said that she felt MiFID was a positive step forward in creating a more beneficial investment landscape in Europe. "But as a rule, the ratings agency tends to have broad support for any new law," she said.
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