The Pained Trader: Quantum of Mifid

The Pained Trader confronts his regulatory doom.

  • By The Pained Trader
  • 24 Aug 2017
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The irony of completing online training module after online trading module for something that will, when implemented, most likely be responsible for my redundancy, is not wasted upon me. 

As with all symptoms of financial market change that have presented themselves over the past three decades, I am remaining airily indifferent to MiFID, acting as if nothing is going to happen and stubbornly resisting any development. 

With good reason, too, because in my experience all developments are adverse and nothing was ever introduced by the regulators that did not leave the plodding broker unhappier with his lot. MiFID is like old age or Christmas: you hate it and you ignore it but it’s unavoidable nonetheless.

I was encouraged by the headlines I read this morning that noted that two very large, household name hedge funds were simply opting out of MiFID. 

Surely I can, if they did? Very straightforwardly they opted for AIFMD with the A standing, oh so enticingly, for Alternative. Why is industry opposition not more united in its rejection of this Eurocratic imposition of overhead and unnecessary complexity?

One probable explanation is that still hardly anyone knows what it entails. There are some who have read about it and prepared, and then there is the other 99%. 

I conducted a very unscientific survey on the desk here to see who could decipher the acronym. Fewer than one third of respondents answered correctly but among those who didn’t, there was unanimity on what the ‘F’ might represent. 

We have yet to establish a consensus on what caused the Global Financial Crisis of 08/09 (all the little pixies who run round trading floors when the lights are off at night, I posit) and now here we are about to embark on another adventure in the dark. In fact, since MiFID was first mooted in 2004, it’s quite possible that this madcap scheme was responsible for the GFC, and I’m running with that theory.

The UK Financial Conduct Authority’s policy statement on MiFID runs to a thousand pages. I finally got round to reading a white paper on the subject, written by a competitor, last evening. Holy MiFID. 

I was reminded of Castlereagh’s response to Canning’s challenge to a duel: “I’d rather fight him than read it.” There are definitely no jokes in it. 

In the Edinburgh Fringe competition for the best one-liner of the whole festival, none of the finalists mentioned MiFID. It is not a subject that lends itself to jollity or drama. I confidently predict there will never be a James Bond film containing MiFID in the title, no “Quantum of MiFID” or “The Spy Who MiFID Me” or “OctoMiFID” or “On Her Majesty’s Secret MiFID” but perhaps they may one day start shooting “MiFID is Forever”.

Wading with difficulty through the first paragraph, I came across this: "For high-touch crosses, ESMA clarified in its Q&A that a broker 'may accidentally receive two opposite matching buying and selling interests and match them but it should not have systems in place aimed at increasing opportunities for client order matching'". 

If I ever do find opposite matching orders, it could only be accidental, and maybe Salvation Bank hired me precisely because they wanted to avoid the client order matching on which the directive frowns. Removing myself from the equation, however, it still strikes me as the most bizarre and irrational dictate, because surely “systems in place aimed at increasing opportunities for client order matching” is the definition of a market?

What alarms most market participants (not me, though. Nothing alarms me because everything is already shit) is the palaver surrounding the unbundling of research.

Even though what is produced by the City tends to be somewhat less than fatidic — if we’re being kind — everyone seems to think it’s essential and the pricing of analytical input is currently the subject of fierce debate. Before the protocols have even been implemented, the rates charged for various packages and levels of service are falling rapidly and, just like equity commissions and bond trading spreads, making their way inexorably towards zero.

I read another article on this subject the other day, and it discussed the difficulties faced by other market commentators who don’t provide research per se but who do churn out a lot of observational product, rich in autobiographical detail and trivia as a means of drawing the potential reader in to the more substantive trading ideas lurking in the murk. It’s the equivalent of a spoonful of sugar, as Mifid Poppins might have put it. 

I’m not one hundred percent clear on this but I think, from January 2018, fund managers will no longer be able to accept even this lightweight stuff without paying for it.

Every morning, for many years, I’ve been unpacking my heart like Hamlet’s whore and was under the impression there was some kind of reverse MiFID directive operative that prevented fund managers from paying me for my suicide note in daily instalments. I’m incredulous about the notion someone might be obliged to pay me to articulate despair. More likely I just run into the firewall. It’s a poor salesman who is incapable of selling something for nothing.

However, it’s when it comes to trading that things really start to flummox the humble, plodding trader, overtaken and left behind by technology and acronyms in the past decade. 

I discovered in the course of reading it that authorities regard me as a “Systematic Internaliser”. It sounds like a euphemism for a belle de nuit. Apparently I’ve been one since 2007. (A systematic internaliser, that is, not a belle de nuit.) 

When I analyse what it is I do for a living, though, I would argue “Random Externaliser” is far more appropriate because I think a lot of strange things during the day, and then I transmit those thoughts indiscriminately to my clients or, indeed, anyone who will listen. There’s nothing systematic or internal about it. 

I want everyone to share my haphazard unhappiness. I don’t care too much about liquidity venues, crossing networks, low-cost aggregation platforms and dark trading pools. I don’t know where my clients trade. I only know it’s not with me.

MiFID impossible. There will be no sequel to that.

  • By The Pained Trader
  • 24 Aug 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 71,795.24 248 8.65%
2 JPMorgan 59,685.75 255 7.19%
3 Bank of America Merrill Lynch 52,401.35 173 6.31%
4 Barclays 50,153.02 148 6.04%
5 Deutsche Bank 44,937.03 167 5.41%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Deutsche Bank 9,857.42 14 13.05%
2 SG Corporate & Investment Banking 7,833.35 12 10.37%
3 Goldman Sachs 5,773.27 11 7.65%
4 Citi 4,606.54 14 6.10%
5 BNP Paribas 4,132.76 19 5.47%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 2,546.04 12 11.21%
2 JPMorgan 1,732.54 10 7.63%
3 Credit Suisse 1,727.84 7 7.61%
4 Deutsche Bank 1,465.10 11 6.45%
5 Citi 1,285.41 7 5.66%