27 May 2015
I just spent a week speaking to many of Celent’s UK based clients. I was surprised by how high MiFID II was on everyone's agenda. Whenever I posed the question—what are you most interested in discussing? The answer was firmly-MiFID II. The response was typical for the entire client spectrum: buyside to sellside; venue to infrastructure provider; vendor to regulator. It was most apparent regarding anything fixed income, given the potential magnitude of change coming to those markets. It is interesting to note the divergence, from a fixed income perspective between the US and Europe. On the US side, we have been discussing the evolution of fixed income markets-the gradual pace that occurs as a function of a naturally changing environment. Generally, change is slow, but sudden shifts to the established environment can occur. In a similar vein, think of the Cretaceous period-80 million years with incremental natural selection occurring over vast time frames but ruled by dinosaurs. Of course, during those long periods of time stresses occurred that accelerated the process of change. In the US fixed income market, those stresses come from dealer decreasing balance sheet, transition to alternative liquidity, buyside flexibility, rise of new venues, QE, and, ever restrictive capital/regulatory regimes. By contrast Europe, where under MiFID II, slated for implementation in the next 18 months, market participants are looking at a major shift in the climate. Implemented as currently written, MiFID II will be a radical remapping of trading across the universe of FI products-an asteroid, plummeting into the Gulf of Mexico-ending the cretaceous period with a “bang”, and life/trading as we know it. Of course, we know how that story plays out – the dinosaur die off made way for those nimble, tiny creatures to find their way and-well, become the established order.