post-trade

After a multitude of articles on the policy objectives of MiFID II, the new obligations of the buy- and sell-side on research and trade reporting, and the new requirements for transparency in fixed-income markets, Thomas Murray finds itself in the position of having to see how trading begins to adapt as the Directive comes into effect at the start of the year. Specialising in post-trade infrastructures and services, its business lines are not in the immediate lines of fire of this reform – its clients are, but in other of their activities.

The authorities with whom we have spoken caution that the new shape of the EU capital markets will not take form immediately, judging from how long it took to see with any certainty recurring patterns in trading after the implementation of Regulation NMS in the US and MiFID I in the EU. We have been advised to expect a period of 12-18 months in which time the order flows and ways of execution will have settled under this new regime, assuming that this adaptation is not unduly thrown off course by world events, unforeseen technological changes, and of course economic and financial changes that would alter significantly today’s outlook on trading and investment conditions. This truly is a complex mix of variability, one which does not give even the keenest of observers a clear view ahead.

MiFID II is much discussed, and rightly so. It is a major capital markets Directive affecting a large chunk of the world’s financial system, with effects that will be felt across the world. How this will play out in a practical sense is one of the unknowns of these coming months and longer. Market professionals appreciate that its precursor, MiFID, came to have a major influence on the way capital markets trading takes place, notably in the fragmentation of Europe’s national equity markets.

And with just over three months before MiFID II comes into force at the start of January, there is indeed much hard preparatory work underway, head-scratching, confusion, repositioning of businesses, and human resources redeployment. Given the changes in trade reporting, the IT component is heavy – and it was difficulties with IT preparations that led to a one-year reprieve.

Thomas Murray was founded 24 years ago to assure that investors’ property is respected by custodian banks. This was a time when institutional portfolios were spreading investments across multiple jurisdictions, a trend that has accelerated over this past quarter century. The firm’s remit widened to cover the spectrum of post-trade services, always with the same focus on investors’ safety and rights. Shareholder rights are, in fact, central to the financial system, and so also the key focus of Thomas Murray’s work.

Shareholder rights are a critical economic concern: when the members of the public are asked to hand over hard-earned savings as an investment in a corporation, whether in a stock or a bond or another financial instrument, the managers of that enterprise have an immediate obligation to handle that money fairly and honestly. Without trust in proper conduct by those managers in growing the enterprise such that value is created, we will not have the investment or capital formation (or jobs, or goods and services!) that our societies need.

This is the fourth in a series of five thought pieces Thomas Murray wishes to share with clients this summer, the questions for our fields of expertise before the amorphous Brexit project takes shape.

In response to the 2007-2009 financial markets crises, and in line with G20 direction on restoring global economic growth, a primary objective of the European Commission was to shore up gaps in capital markets regulation wherever they were to be found.   As regards custody, the partially overlapping segments of central securities depositories and custody banks have been subject to colliding regulatory purposes and often contradictory official projects – if confusing, this is somewhat understandable given that the two domains fall between capital market and banking legislation/regulation, each subject area with its own points of view.  This still needs sorting out, and that clarification of duties and compliance will take place in the near background whilst the British exit from the EU is defined and executed.

In response to the 2007-2009 financial markets crises, and in line with G20 direction on restoring global economic growth, a primary policy objective of the European Commission was to extend the existing, rather limited regulation of financial market infrastructures (‘FMIs’).

As defined by global regulators, FMIs fall into four categories. These are central securities depositories (‘CSDs’), central clearing houses (‘CCPs’), trade repositories (‘TRs’), and payment systems. The two important regulations developed by the EU in this space are the European Market Infrastructure Regulation (‘EMIR’) and the Central Securities Depositary Regulation (‘CSDR’). This article will discuss the possible implications of leaving the EU specific to these regulations.

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