MiFD - Should Be Better News For TRaders


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Nov. 1 (Bloomberg) -- Citigroup Inc., Goldman Sachs Group Inc. and at least a dozen more banks gain new powers today to challenge the dominance of London Stock Exchange Plc and Deutsche Boerse AG under Europe's biggest revision of securities laws.

The Markets in Financial Instruments Directive takes effect after seven years of planning and opens up competition between exchanges and alternative trading platforms across the 27-nation European Union.

``Mifid opens the door for competition and that always stirs things up,'' said Will Easley, who traded equity options on the floor of the Paris Bourse from 1987 to 1995 and is now vice chairman of the all-electronic Boston Options Exchange.

Investment banks plan to invade the turf of the LSE, the dominant U.K. market; Deutsche Boerse, where about 98 percent of exchange trading in German stocks takes place; and NYSE Euronext, whose markets include the historical monopoly for French shares. New York-based Citigroup, the biggest U.S. bank, and Goldman, the most profitable securities firm, are part of a group of nine companies that plan to start a facility called Turquoise next year.

``In our first year it's absolutely critical'' to attract large trading volumes, Eli Lederman, the Morgan Stanley managing director named a week ago to head Turquoise, said in interview. ``At the outset double-digit market share is eminently feasible and we expect it to grow considerably from there.''

More Competition

Borsa Italiana SpA of Italy -- bought by the LSE in June -- and Bolsas y Mercados Espanoles of Spain are also being thrown open to competition for executing and reporting transactions as well as clearing and settlement.

At stake is billions of dollars in fees for handling stocks across Europe with a market value of $15.4 trillion. The LSE, Deutsche Boerse and Euronext made about $864 million last year by charging investors to trade stocks on their markets.

``After two or three years we'll see that liquidity converging back around the most effective execution venues,'' Alan Jenkins, European head of the BearingPoint Inc. consulting firm's Mifid practice, said in an interview. ``My bet is that will be the new venues and not the conventional exchanges.''

The new rules ``give a commercial advantage to London-based firms'' versus the continental European exchanges, Jenkins said. ``They will be able to attract more cross-border business as a result of freedoms that they have starting today.''

Common Rules

Exchanges are ready to compete with alternative platforms, said Roland Bellegarde, a director of NYSE Euronext, which owns the incumbent bourses in Paris, Amsterdam, Brussels and Lisbon. ``We have the trust, we have a brand, we have a neutrality, and this is a huge advantage we have today in the markets,'' he said.

Another group of banks will challenge the exchanges in reporting off-exchange trades, through a venture named BOAT. Mifid requires disclosure of all transactions within three minutes, with a delay permitted for certain block trades where revealing the position would cause tie-ups.

The EU passed the law in 2004, replacing the 1993 Investment Services Directive, as part of a plan to unite the region's financial markets and cut the cost of trading.

The law, likened to a Europe-wide version of the British ``Big Bang'' deregulation of 1986, also sets common rules for consumer protection. Firms must assess the suitability of the investments they offer to the needs of each client, and abide by strictures against conflicts of interest.

Trading Costs

The broader plan to integrate financial markets can boost gross domestic product by 1.1 percent over time, according to figures cited by the EU executive agency. The overhaul may cut the cost of raising equity capital by 0.5 percent, and debt by 0.4 percent.

``It will lead to lower cost and higher volume,'' said Jean-Baptiste de Franssu, chief executive officer of Invesco Plc's European business. ``Investors, at the end of the day, are going to feel better under Mifid.''

Mifid requires brokers to seek the best way to execute orders. That includes transaction fees, and European brokers also can consider speed and certainty of execution if clients demand.

Citigroup in Europe responded with new technology. From Nov. 1, every trade made through the bank, either on its own account or for customers, will use so-called Smart Order Routing technology to scour different markets in milliseconds to decide which one is best.

More Choices

In the past, Citigroup's London traders would look at prices quoted on primary exchanges. Employees in the bank's glass tower by the River Thames can now seek prices for BP Plc shares at three different European bourses. Those include Chi-X Europe Ltd., which started in European stocks in March, and Virt-x Plc, a London-based unit of the Swiss stock exchange, in addition to the LSE, which has been around since the American War of Independence.

``A big part of Mifid is introducing competition between venues,'' said Toby Bayliss, Citigroup's head of electronic execution sales, who oversees the introduction of the new technology. ``Six months down the road customers will look at how they access the markets and the cost of trading and ask their brokers some questions


Experienced member
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Better news for those making the markets (GS et all).

Not sure its good news for traders as trading costs are pretty cheap already.

I would rather have good depth on the futures exchanges i trade on , rather than the liquidity be split across venues.. this would probably increase slippage. Costing me much more than any saving in commissons.
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