This week opened with the European regulator Esma admitting that it might not have enough time to set out all the rules for the trading obligation and position limits for derivatives before January.
For position limits and the trading obligation, the rules include an extra layer of supervision, where proposals go back and forth between the national competent authorities and Esma. Although the not-quite delay is not all that surprising, it does make one wonder where else the regulator introduced extra layers of supervision that are now slowing down the implementation process.
The market seems to have accepted that Mifid II compliance work will bleed well into the first quarter of 2018 and beyond. Although delays may give smaller players the chance to catch up with the more onerous requirements, they might conflict with ongoing work to prepare for PRIIPS and the Global Data Protection regulation.
A UBS research note from earlier this week not only suggested that most US banks were overvalued and were underappreciating the impact Mifid II would have on their business, but also predicted an accelerated slide into passive asset management. Improved transparency should boost the use of ETFs for securities lending and reduce off-exchange trading of ETFs elsewhere.
Other aspects of the regulation continue to confound us all. The latest Q&A on everyone’s favourite, direct electronic access, appears to have two possible interpretations, not unlike so much of the other guidance in this area. For chains of direct electronic access, it remains unclear whether DEA providers have to monitor risk parameters for all individual clients and clients-of-clients or merely the aggregated risk.
Regardless of the interpretation, the rules would apply to all firms, regardless of whether they’re located in the European Union or not. In this way, the regulator makes sure it can keep an eye on foreign firms even as several member states – we have counted the UK, Ireland, Spain, Germany and the Netherlands – have introduced rules that would do away with or delay the need to register non-EU firms.
In its 2018 work plan released on Friday, Esma also noted, almost casually, that its preparation for supervisory convergence, supervision and risk assessment around Brexit may have an impact on the other work it has planned for 2018.
Elsewhere, Mifid II is making exchanges and traders in Asia Pacific giddy. According to the market grapevine, the Asian markets expect some business to shift eastward as Europe enters an era of increased regulation, not unlike when business fled across the Atlantic after the introduction of Dodd-Frank.
In the US, vague promises of deregulation have begun to take shape as newly minted CFTC Commissioner Brian Quintenz called for a revamp of industry sweetheart Regulation Automated Trading. The White House cancelled the President’s speech for “Deregulation Day” on Monday due to the Sunday night shooting in Las Vegas, so we will have to wait for the Trump administration’s plans for Dodd-Frank a while longer.