The EU’s Markets in Financial Instruments Directive II (MiFID II) came into effect today and is expected to be one of the final pieces of regulatory reform following the 2008 banking crisis.
Designed to offer greater protection for investors, it is estimated that global banks and asset managers will have spent $2.1bn (£1.5bn) in order to comply with the 1.7 million paragraphs of rules.
It is hoped that the regulation will make financial markets more efficient resilient and transparent, increasing the amount of information available to investors while reducing the use of dark pools and OTC trading.
Some of the changes include fund managers having to pay investment banks and brokers directly for analyst research, instead of combining the cost with trading commission. The changes have prompted warnings that some analysts could lose their jobs.
The regulations are also aimed at clamping down on so-called ‘dark pools’, or private markets that allow people to trade anonymously. They will place a cap of eight per cent of volume of any stock changing hands in this way.
In addition, local government pension schemes will automatically be categorised as ‘retail’ clients rather than ‘professional’ ones, and will therefore not be able to access some fund classes or products. This is expected to dramatically impact investment strategies, with the Pensions and Lifetime Savings Association (PLSA) publishing a guide outlining the top actions pension schemes need to take in preparation for the regulation.