 |
 |
||||||
|
|||||||
 |
|
Markets in
Financial Instruments Directive (MiFID)
Dear visitor,
It is obvious that for different
groups, MiFID means absolutely different things. First, reading the directive, I have the feeling that this is the next client classification obligation. A “Know (even more) Your Customer ”. Investment banks, retail banks, portfolio managers, stockbrokers and broker dealers, corporate finance firms, futures and options firms, commodities firms etc. have to distinguish between three types of clients: 1. Retail clients 2. Professional clients 3. Eligible counterparties (ECP) Clients can move between categories to obtain more or less regulatory protection. European regulators (like the FSA in UK) are already considering to use the MiFID client categorisation regime as a basis for classifying clients doing non-MiFID business. Firms must review the information they have on each client (again!). They will need to gather additional information about their retail clients. Second, it is the next effort to regulate Hedge Funds. MiFID has a significant impact on hedge fund managers across the EU/EEA (European Union / European Economic Area). These managers must be very careful: If they do not complete the legal and structural work and do not comply, they may have to cease trading until they are MiFID compliant. Fund management firms who think they are exempt from MiFID have to be more careful. The intention to regulate hedge funds is clear. The interpretations will show this direction. Many will be considered “investment firms” and will be within the scope of MiFID (and the Capital Requirements Directive / Basel ii). Hedge funds are "normally" domiciled offshore (in the Cayman Islands for example). According to the UK-based hedge fund managers, the administrations are usually carried out in Ireland. It will not change. But... What about the new MiFID rules for outsourcing? Yes, the natural reaction will be an Irish administrator who is the service provider to the Cayman-domiciled fund. But... This is still the first battle. To understand better the new environment, it is good to have a look at the Savings Tax Directive (www.savings-tax-directive.com) Third, this is a directive that gives powers to the Home supervisors. Like the Capital Requirements Directive (which is implementing Basel ii in the European Union). We can forget the “mutual recognition” doctrine. The Home supervisor is powerful. ----------------------------------------------------------------------------------------------------------------------It is time to kiss the Investment Services Directive good-bye. It has set the legislative framework for investment firms and securities markets in the European Union since 1993, and it has provided for a single passport for investment services. The Investment Services Directive has been replaced by MiFID that reflects developments in financial services and markets and extends the scope of the passport to cover commodity derivatives, credit derivatives and financial contracts for differences for the first time. There are also opportunities with MiFID. Firms will be authorised and regulated (in their home state) and after that these firms will be able to use the MiFID passport to provide services to customers in other EU member states. It becomes easier (and cheaper) to carry out cross border business. This is a new world for many players in the financial market. Geographic and business boundaries are changed and in many cases are eliminated. European retail customers will have access to a wider range of services. No-EU firms will definitely take advantage of the new opportunities. A group of nine investment banks - ABN Amro, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, Merrill Lynch, Morgan Stanley and UBS - are pooling their trade transparency data and are creating a pan-European platform for the collection and sale of trading data. But, European investors (individual or institutional) are going to expect the protections afforded by MiFID when dealing with U.S. or non-EU businesses. Dear European Exchanges, do you understand what it happening? Big banks, or internalizers, will not have to pay an exchange fee and reporting costs, and they can report trades in a web site. Exchanges will have to lowering reporting costs. But, the banks will be clearing trades internally, at an even lower cost. Systematic internalizers become global stock exchanges. "Best execution". These are very nice words and a really good excuse. It will definitely impact off-book transactions. Firms that deal from their own book now are "systematic internalizers," and they will publish their quotes. It is interesting to realize the impact on hedge funds. ---------------------------------------------------------------------------------------------------------------------- NoteThis web site has been prepared as a general guide and does not constitute or offer legal, financial or other advice upon which you may act or rely. Specific professional advice should be taken in respect of any individual matter. George Lekatis General Manager and Chief Compliance Consultant Compliance LLC |
|
|
