What you should know about MiFID II | VTFintech

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What you should know about MiFID II
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• Markets in Financial Instruments Directive, or
  MiFID II, was enforced on 03 Jan 2018.
• This new regulation is aimed at providing greater
  protection to investors across the spectrum of
  asset classes.
• MiFID II covers exchange traded funds (ETFs),
  foreign exchange, fixed income and equities.
• The MiFID II regulation is applicable on all sell
  and buy side companies in the European Union
  (EU).
• Objectives of MiFID II
• The MiFID II regulation emphasises on the need
  for safety, transparency and efficiency.
• Curb the over-the-counter trading and capture
  most of the trade under regulated space.

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• Through these regulatory changes, the EU wants to
  restore investor confidence in the market.
• Does it matter to me? 
• MiFID II is very broad in its coverage that
  includes almost all participants in the financial
  sector.
• The regulation is applicable on
• Fund Managers
• Brokers
• Retail Investors
• Banks
• Exchange Trading Venues
• Pension Funds
• High Frequency Traders

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If you count yourself as anyone listed above, you
fall under MiFID II regulation. So, what do i
need to do?  In a nutshell, separate research
from trade offerings. The new regulation demands
that asset manager pay for the research that they
use for their investment decisions. The
regulators believe that in absence of such a
separation, there is a conflict of interest that
can adversely impact fund managers clients.
These clients can be people with limited
financial knowledge such as ordinary people
saving through pension funds, or retail
investing. Traditionally, asset managers
received research for free. This would include
research in form of reports, phone calls,
communication with research analysts. 
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The research providers would simply absorb the
cost of research under their trading fee. MiFID
II wants to change that and bring more
accountability. The change is to remove the cost
of the research from trade costs. This is
popularly known as un-bundling.   Why does it
matter?  MiFID II gives regulators much more
visibility in to the everyday activities of
financial institutions. This visibility gives
the tools necessary to spot irregularities and
ensure investors are getting fair deals. It is
important that financial institutions educate
their employees and update their existing systems
to match the regulatory requirements of MiFID II.

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This also changes the nature of how research is
shared by analysts with their clients. There must
be a payment for each research. MiFID II also
doubles down on dark pools trading. Contrary to
lit markets such as NYSE, LSE, the dark pools are
private markets. In these private markets, the
traders no not have to reveal the size and price
of the trade beforehand. While there is merit
in dark pools, MiFID II limits the total volume
of trade at 8 for dark pools. Meet regulatory
requirements with Parity One Our asset
management platform Parity One gives you
access to market data, cutting-edge analytics and
ability to create model portfolios as benchmarks
that can replicate research.
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Irrespective of whether you are sell or buy side,
you can use Parity One to conveniently track the
performance of any research. It takes few
minutes to set up a portfolio, and after that the
system can automate the function. You can also
compare these benchmarks against other indices in
the market or one of your own.   You can also use
the platform to on-board your own custom data. We
provide some alternate data as well to give you
the competitive advantage. Read More Whats the
impact of MiFID II on investment research?