Mostly… fixed income and cross product eTrading

August 8, 2006

Mifid for fixed income

Filed under: etrading, Mifid — holky @ 6:54 am

Mifid is finally on the table for the fixed income markets. Even though the impractical one-size-fits-all-of-the-market best execution benchmarking proposal (from IBM for FSA) has been discussed and rejected as unworkable by the market participants (LIBA, BMA, ISDA), the likelihood is that the regulators will still choose to impose some additional regulation – they are regulators after all. The consultation period ends Aug 17th, and we wait until the FSA response detailing their proposals for best execution which is due in October. As yet I have still not heard of any specific example of market failure or operational issue with the fixed income market that the regulators are trying to address. But I do hope they see the potential for irony if they place onerous or unworkable regulatory constraints on the fixed income market that achieve nothing other than driving liquidity away and so making the market a much more scary place for the “uninformed investors” they are supposedly trying to protect. I also hope FSA has a social conscience and so recognises the hugely negative social impact that they could cause to all living in major european cities by regulating these markets to the extent that much of the liquidity moves ‘offshore’.

Alas etrading as it stands is not the full answer. Just looking at a plain vanilla bonds environment, sure there is certainly an angle for the existing multidealer etrading venues to help with best execution reporting – which should suffice the majority of institutional fixed income etrading flow. But this still leaves the rare breed of customers who have their own fi order management system hooked direct into dealers (who are also likely to be savvy enough to be able to document their own best execution policy), and it also leaves the (typically) smaller guys, or those customers where fixed income is not their primary product set, who have singledealer electronic trading functionality. And the big one of course is that there are still the 000000s of fi voice trades per day that will require some form of best execution record for audit…   bet you cant wait ’till October for the punchline.



  1. A group of 11 UK trade associations have banded together to influence the way the European Union’s Markets in Financial Instruments Directive (MiFID) is implemented following fears that City regulators could take an “overly stringent approach” to the new measures, says the FT. —

    Angela Knight, chief executive of the Association of Private Client Investment Managers and Stockbrokers (Apcims), told the FT that the UK had a history of implementing European directives “more restrictively than other member countries”. She says it is much better “if the pen that writes the guidance is in the hands of industry and not the regulator”.

    Comment by holky — August 17, 2006 @ 5:46 am

  2. I’m hoping it won’t be that bad…

    Comment by etrading — August 29, 2006 @ 2:04 pm

  3. Hmmmm… while i do believe electronic trading will help in terms of “proving” compliance (systematically preemptively checking for compliance before anything material is done, then providing an audit after the event), and that for this reason an increased regulatory burden will drive some voice flow into electronic channels, RFQ is not going to be the silver bullet answer for FI mifid.

    As soon as regulations specify the parameters of an “acceptable” RFQ, such as the number of dealers asked (or perhaps more accurately the minimum number of executable prices you get back before being “allowed” to trade) then you have already limited this to only working for liquid products that have more than a handful of dealers willing and able to quote, selected from those dealers that have a relationship with that customer.

    A one size fits all piece of regulation clearly doesn’t fit all, and consequently (sadly, also) there is no immediately apparent single easy route to avoid (but not evade!) complying with the regulation for all of a particular product class.

    Comment by holky — September 1, 2006 @ 2:52 pm

  4. The Futures and Options Association (FOA) is calling for the UK’s Financial Services Authority (FSA) to drop controversial proposals for the use of price benchmarks to demonstrate best execution in dealer markets. The FOA, which represents the derivatives industry, is urging the regulator to allow firms to decide the process and the factors relevant to measuring ‘best execution’ and argues that there are more appropriate means of measuring price in certain illiquid markets than benchmarking. –

    Comment by holky — September 5, 2006 @ 2:51 pm

  5. very interesting, but I don’t agree with you

    Comment by Idetrorce — December 15, 2007 @ 12:57 pm

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