Trading volumes slumped ahead of the changes, according to two brokers with knowledge of the matter, with client business at one major brokerage in Europe almost non-existent as the rules were poised to take effect yesterday. The finance industry is bracing for one of the most seismic regulatory shifts in history, affecting everything from research to dark pools.
There's no official time for flicking the switch to the new rules, and brokerages were still meeting late on Tuesday to discuss how to trade under MiFID II as companies race to comply with the law that provides as many opportunities as problems for banks and asset managers.
TP ICAP, the world's largest inter-dealer broker, expects trading volume in bonds, swops and other securities typically traded off-exchange to be lower than usual across the board yesterday and across most markets this month, according to a representative at the firm.
Another brokerage told clients that it wouldn't accept swop trade orders from the last trading week in December until January 3, said one of the people, who asked not to be named because the information isn't public.
“Reality is, it’s going to need a lot of refining as we see the market and clients take on the rules,” said Neil McLean, head of execution trading for Asia ex-Japan at Nomura Holdings' Instinet Pacific Services in Hong Kong. “We have some challenges with categorising clients and making sure they receive only what the rules allow.”
His firm expects less business in the short term from Europe as clients get used to the rules, McLean said, adding that trading in Asia was quiet yesterday with Japan shut for the New Year holiday.
The rules present banks with opportunities to grow businesses offering passive investing, research and systematic internalisers, but also leave them facing competition from research boutiques and platforms that offer low-cost trade execution. Retail lenders may also suffer from the ban on some inducements for investment advice and portfolio management.
That's because banks that distribute mutual funds to their retail clients often receive and retain a portion of the initial sales charge from the fund manager, or receive an annual fee.