MiFID II may be the talk of the town all across Europe, but the regulation has been rather less high profile across the Atlantic, as some
US investors put themselves at risk with their apathy.
One US-based consultant told The TRADE that
“north of 50% of investors here have no idea how it
[MiFID II] will impact them”.
Modern regulation tends to feature many extra-territorial aspects that could trip up investors outside
of the jurisdiction the regulation originates from.
Similarly, many firms are now global in nature, either
through owning subsidiaries or having trading desks
in foreign markets, or by investing in foreign securities
or simply because their counterparties have a global
With all of the above in mind, it seems likely that
there are very few, if any, US asset managers who will
be entirely unaffected by MiFID II.
The impact of MiFID on the US market can be
placed into three broad categories; best execution,
market infrastructure and cross-border trading and
research unbundling. Each of these areas will, either
on a compulsory or voluntary basis, change the way
asset managers in North America and other territories
outside the EU do business.
Beginning with best execution, this issue has long
been on the agenda for US firms and is one of the
aspects of MiFID II many will easily identify with. US
asset managers are already obliged to seek out best
execution on behalf of their clients, though MiFID II
makes the rules significantly more demanding.
Increasingly quality of best execution in one jurisdiction has tended to increase standards across the board
elsewhere too as clients become used to higher standards from one of their asset managers and demand
that others provide the same level of service.
Joe Digiammo, a director at tech consultancy Sapi-
ent, says: “We’re already seeing some trends towards
better best execution in the US, with a growing num-
ber of best ex tools coming to market, firms creating
portfolio manager profiles to help understand the
execution needs of a fund and more TCA being used.”
Dan Simpson, head of research at JWG, adds that for
North American firms executing in the EU, they will
face a much stricter regime than they are currently
“Best execution will become much more difficult and
technical to prove, with the burden of proof resting on
the asset manager’s trading desk. It will require analy-
sis of a huge amount of market data
for any execution taking place in
the EU,” Simpson explains.
He adds that firms must be able
to see and understand whether or
not they are getting the best price
on a trade.
While market participants are
encouraged that firms are already
responding to the tighter rules on
best execution, this remains the tip
of the iceberg and is the one area
where firms are by far most prepared regarding MiFID II as they
will already be familiar with it from
existing US rules on best execution.
Simpson warns “there is still not
much awareness of exactly what
firms will need to do under MiFID
II’s best execution provisions.”
A related area where there is much
less certainty is around unbundling
of execution commissions. The
new rules under MiFID II mean
that payment for research (or any
other service) through execution
commissions is considered an
inducement and therefore banned.
It also sets tougher rules on transparency of research costs, all of
which ultimately fall on the asset
While some US firms are already
unbundled and make hard dollar
payments for research, many continue to rely on the bundled commission system. While they will
not be obliged to unbundle locally,
they may need to consider where
“Modern regulation tends to feature
many extra-territorial aspects that
could trip up investors outside
of the jurisdiction the regulation