Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, November 01, 2007

A brave new world for trading and execution: what does MiFID mean for IRO’s?

Huxley’s novel describes an (ironic) utopia where humanity is happy and technologically advanced, but deprived of keys to their identity. Does today’s onset of MiFID create a new trading utopia, and at what impact on IRO’s?

As from today, new rules will remove many of the barriers within the European Union that have made trading in stocks an expensive hassle, introducing individuals and companies to a world of investing that their U.S. counterparts have long taken for granted.

MiFID allows financial firms to compete with one another across Europe, forces them to get the best prices for their customers and outlaws national exchange monopolies.
Various studies suggest that the cost trading and settlement is at least six times as high in Europe as in the U.S, and these costs are likely to fall substantially as new trading platforms such as BOAT, Chi-X and Equiduct, as well as the widely reported Project Turquoise, enter the market.

What are the impacts on issuers of securities? Among them, there is a likelihood that issuers’ cost of capital will fall, according to many including the European Commission.

On a more practical note, will IRO’s be deprived of key data that they need to do their job? With the increasing and far flung trading and settlement platforms, will consolidated intra day trading data be transparent? Time will tell, although Reuters and Bloomberg and others have made efforts to ensure that it is.

An anticipated effect could be a big increase in cross border trading emphasising still further the need for real time data access for IR teams.

And will these changes increase liquidity? The EU thinks it does, which will make it welcome news to most.

However, unlike Big Bang, MiFID is aimed at being a slow revolution. It is difficult to predict participants’ – especially fund managers’ – take up of the opportunities. Indeed at least 4 EU member states haven’t implemented the rules at all yet.

Nonetheless, raising capital across the EU will never be the same again.


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