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Big Bang Turns to Drip Feed as MiFID Becomes Bits and Pieces

Big Bang Turns to Drip Feed as MiFID Arrives in Bits and Pieces

(Bloomberg) -- The European Union’s sweeping MiFID II law came into force on Jan. 3. Well, at least some of it.

The rest will show up in bits and pieces over a year or more and some parts may be rejigged after firms, lawmakers and regulators scrap over details.

Below is a timeline of 10 major 2018 deadlines, starting this week, for the revised Markets in Financial Instruments Directive, the biggest revamp of the EU’s trading regulations in decades.

Jan. 25

A battle over equity-trading rules recommences. Comments are due to the European Securities and Markets Authority on a proposal to require platforms run by banks and high-speed traders to play by the same rules as more traditional exchanges. The tick-size rules, which govern how securities are priced, were hotly contested last year. Big European exchanges said the law hands the advantage to so-called systematic internalizers run by rivals by giving them the ability to price stocks in smaller increments. That could help the SIs siphon trading volume from the exchanges. Two months before MiFID II started, ESMA proposed making the SIs comply with the same tick-size regulations. A final change could take several months to complete.

March

ESMA intends to restrict how much stock-trading can be done on dark pools, after announcing a surprise delay to a measure that was set to start in January. The caps, which could apply to hundreds of stocks across the EU, have presented a major data challenge to the regulator, which said earlier this month that it had collected only 2 percent of the market information it had expected. The caps are supposed to make equity-trading more transparent, though SIs could win more business than traditional exchanges.

Early April

The U.K. Financial Conduct Authority gave fund managers the ability to receive free trials of investment research for three months. The first of those will probably end in early April, forcing funds to decide whether to pay for the research going forward or stop receiving it. Clients can’t get another free trial from the same brokerage or research house in the following 12 months. The end of the trials will probably prompt managers to start getting pickier about which research is worth buying under MiFID II’s requirements that funds pay separately for analysis and brokerage services.

April 2

MiFID II rules will be extended to U.K. company pensions after the FCA said the requirements will ease the costs of investing employee funds and help savers. Occupational pensions must meet the investment research rules as well as a requirement that asset-managers get the best execution of their trades. The pensions, which manage more than 250 billion pounds ($355 billion) in financial instruments covered by MiFID, must also record phone conversations about trades to root out market abuse.

April 30

Brokerages and other investment firms must make their first public disclosures by April 30 to show they’re getting good deals for clients when they handle orders. The firms must list the top five execution venues for all client orders by trading volume and asset class. The reports are intended to give investors more information about how their funds are being managed to help them decide which firms should conduct their trades.

May 1, May 15

Traders will be watching to see if more sovereign and corporate bonds will be viewed by ESMA as liquid. ESMA said in December that less than 1 percent of outstanding bonds were liquid and therefore must be transacted in public and transparent ways. The regulator will publish a new version of the liquidity assessments on May 1, which will then be applied after May 15.

June 30

Exchanges and other types of trading platforms must publish their first reports on how well they execute client orders. Similar to the the data due from investment firms in April, the reports are part of an effort by EU lawmakers to give the public more information about how trades are conducted and how much they cost. Disclosures will include execution fees, charges for market data and details about transaction price and time needed to execute trades.

Early July

Brokerages must ensure they get legal entity identifier, or LEI, codes for each of their clients under MiFID II’s transaction-reporting rules. Trading venues also have to get LEI codes from non-EU issuers of securities traded on their platforms. ESMA granted a six-month grace period in late December, citing the industry’s inability to meet the requirement by the start of the law. “No LEI, no trade” has become a common refrain from industry groups and regulators that have been urging firms to register for months.

Sept. 1

Mandatory registration requirements start for SIs, which are trading platforms that banks and others can run by using their own capital to handle client orders. They work as an alternative to exchanges and other trading facilities that match orders from multiple buyers and sellers. JPMorgan Chase & Co., Barclays Plc and Citadel Securities LLC have already told regulators they will operate SIs and many brokerages raced to register at the start of the law in a bid to win business. The firms may enable dark trading to continue or even grow in equity markets because they aren’t subject to the caps set to start in March.

Dec. 31

A European Commission ruling that lets EU traders freely access Swiss stock-trading platforms expires, potentially rupturing trading on the continent. The commission must decide whether to continue recognizing Swiss venues as equivalent to those in the EU. The commission has said it would make that determination based on a wider discussion about Switzerland’s relationship with the bloc.

“The experience thus far is that there are too many teething problems to assume each of these subsequent steps will roll out hassle free,” Nathaniel Lalone, a London-based partner at Katten Muchin Rosenman, said about MiFID’s gradual introduction. The law’s data-reporting requirements have emerged as major challenges, he said in an interview.

To contact the reporter on this story: Silla Brush in London at sbrush@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Ross Larsen

©2018 Bloomberg L.P.