Mifid II's US impact remains uncertain

Author: John Crabb | Published: 18 Apr 2019
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It is no secret that IFLR is passionate about Mifid II. We have been in a semi-serious relationship with the European regulation since its inception, and have remained so long after it came into effect on January 3 2018. It played a large role in spawning our new sister title, Practice Insight, which takes a deep dive into how the regulation – among others – is really being interpreted by the financial services industry, and helping to provide clarity.

That being said, as a general rule, Practice Insight's coverage has been fairly euro-centric. While this might not come as too much of a surprise given that Mifid II is a European directive, it is inherently obvious that a regulatory switchup of this magnitude is going to have an impact on certain secondary markets, like the US.

See also: Mifid II: market not tapping best execution data potential

Yet getting US market players to talk about how they have been affected or what changes they have had to make can be like pulling teeth. "I can put you in touch with our team in London," they say, or "it doesn't seem to be having too big an impact on us, yet".

Another US-headquartered – but globally active – firm said: "Although we continue to monitor this issue as it impacts our customers, none of the combined businesses located in the US are directly subject to Mifid II, and are therefore not impacted. For some of our European customers who are regulated in the EU as Mifid-authorised firms, there are certain compliance requirements (like transaction reporting and transparency requirements) that we have taken steps to assist them with, but the extent of these compliance obligations varies."

From that it sounds like there is little to no problem. But Mifid II is clearly having an effect in the States. Before last January, Wall Street lobbied heavily to prevent it from breaking into the US market. That still wouldn't have solved it; banks with a global footprint have long had to contend with acting in one fashion in the EU and another in the US. From the buyside perspective too, there is a growing reluctance to take such different approaches on either side of the pond; in the context of research unbundling rules, for example.

Two years ago the Securities Industry and Financial Markets Association (Sifma) held a well-attended Mifid II-dedicated event in New York. Panellists discussed how the directive would affect brokers and others in the US, as well as the required clarifications from the Securities and Exchange Commission (SEC) to ensure a smooth transition. While on the day senior counsel Vanessa Meeks suggested it was not the SEC's problem and it would not be providing assistance, by October the regulator had issued no-action relief for those directly affected.

So why the lack of concern? This week one of the world's largest broker-dealers told us that the business had not been impacted at all.

Sifma, however, seems to know something others don't. In late March, Kenneth Bentsen, president and chief executive, wrote an open letter to the securities regulator calling for permanent relief. "Allowing broker-dealers to charge separately or receive cash payments for research provided to both investment managers and institutional investors without being subject to the Advisers Act creates an even playing field for investment managers, institutional investors, and their underlying clients and investors, while ensuring existing pressures on research are not exacerbated," he wrote, suggesting that the lack of consistency has been having a greater impact than others might be letting on.

It has been just over a year now since Mifid II came into force, yet both the short and long term effects remain uncertain. The question seems to be, for the US at least, is this the calm before the storm? Or is the storm simply passing by?

See also: Sell-side: Mifid II research pricing and trial traps are still grey areas

Seeing an impact from Mifid II in the US, please contact john.crabb@euromoneyny.com