We have the solutions you need to address your MiFID II requirements.
The timeline for compliance with MiFID II – Europe’s second Market in Financial Instruments Directive – is urgent, with an effective date of January 3, 2018. Whether you are a buy-side or sell-side professional, IHS Markit can guide you to:
Conduct sophisticated benchmarking to improve best execution and transaction cost analysis
Manage the process of evaluating, utilizing, and paying for research
Comply with wide-ranging transaction-reporting requirements
Adapt to the changing economics of securities trading
Efficiently manage regulatory outreach and data exchange with counterparties
In 2004, the European Community adopted the first Market in Financial Instruments Directive (MiFID I), which aimed to create a single European market for investment services and activities. Whereas MiFID I strove to create a single European equities trading market, MiFID II developed in response to the 2008 financial crisis. The legislation will extend and reform the original MiFID framework to the non-equities markets: derivatives, foreign exchange, cash, commodities and fixed income assets. Trades of all equity and non-equity assets will be required to occur in open, transparent trading venues. Execution of MiFID II is slated for January 3, 2018.
We have longstanding industry relationships with the top sell-side, buy-side and regulatory institutions, serving more than 3,500 of the world's largest institutional customers, including banks, hedge funds, asset managers, regulators, auditors, fund administrators and insurance companies
We have more than a decade of experience providing effective regulatory solutions for the financial service industry, from EITF 02-03 to MiFID, Dodd Frank, EMIR and now MiFID II and MiFIR
We have one of the broadest solutions set for MiFID II requirements, spanning all key requirements for the three core MiFID II objectives: Investor protection, transparency, market structure
Our solutions have always harnessed the latest technology to provide the functionality our customers need to adapt and perform – We are currently investing in next-generation initiatives such as blockchain, microservices and Symphony to help power the solutions of the future
Resources: Independent research, blog entries and more on MiFID II
MiFID II’s Buy-Side/Sell-Side Standoff: The Good, the Bad and the Ugly
RTS 28: More to Compliance than Meets the Eye
Fighting the Paper Tiger: The challenge with MiFID II Repapering
MiFID II and Trade Reporting: Get Ready for Big Changes
29 September 2016: MiFID II to cost
financial industry $2bn
Counting the cost of MiFID II report highlights
Are you ready for MiFID II transaction reporting?
The Barbell Effect of MiFID II Research Unbundling
An investment firm will need to set up a research payment account funded by specific research charges billed to the firm’s clients. Research charges to fund these accounts must be based on a research budget determined by the investment firm, and cannot be linked to the clients transaction volumes or values.
The amount and frequency of the research charge to fund the research payment account must be agreed between investment managers and clients. Research budgets may only be increased with a client’s written agreement, and must be managed solely by the investment firm, with senior management oversight. Investment managers need to put in place certain controls, including a clear audit trail of payments to research providers and how the amounts were determined. Investment managers need to regularly assess the quality of the research, including its ability to contribute to better investment decisions and the extent it benefits client’s portfolios and have a written policy documenting this process.
The amount investment managers are willing to pay to each broker supplying research will need to be determined in advance. The aggregation of these budget figures will determine the research charges for the firm’s clients. Increasing the research budget will require written agreement from clients. Research commissions will need to be tracked at the fund level. Broker votes can be used for allocating research charges, but do not address budgeting and client approvals.
Direct payment by investment managers only requires general disclosure and conflict management. Investment managers may account for their direct payment through an increase in their portfolio management or advice fees.
Asset managers may be able to use CSAs to pay executing brokers for trade execution while allocating part of the commission for a research provider. CSAs may become a mechanism adopted to implement research payment accounts. They help address conflict of interest issues between brokers and portfolio managers. However, CSAs alone do not meet MiFID II requirements as they allow research charges to be linked to transaction volumes.
Broker dealers may potentially benefit from the new guidelines as CSA brokers. However, ESMA states that research pricing should be unbundled and is calling for the European Commission to address conflicts between investment banking and research.
Execution policies should be customized depending on asset class and type of service provided. Policies must include factors used to select an execution venue, such as price, costs, speed and likelihood of execution, and the relative importance of each factor. Investment managers must also provide clients with information on how venue selection occurs, specific execution strategies employed, and procedures used to analyze execution quality and how best execution is monitored and verified. The firm’s top execution venues also need to be disclosed. Client requests for information about policies must be answered clearly and within a reasonable amount of time.
Where they execute over-the-counter, investment managers must be able to check the fairness of the price proposed to the client. This shall be done by gathering market data used to estimate the price of the product and through comparisons when possible to similar products.