Sat, Jun 25, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Greenwich Associates survey shows institutional investors remain frustrated with European regulators

Wednesday, November 14, 2012
Opalesque Industry Update - Greenwich Associates' latest research shows that only 6% of the buy-side respondents to a new Greenwich Market Pulse believe that institutional investors have had a meaningful influence on the legislative process that is working to produce new MiFID II rules.

According to the study of 103 institutional investors by Greenwich Associates completed mid-October, only 11% of respondents thought that sufficient consideration was being given to the needs of pension funds and other beneficiaries of long-term institutional investment in the legislative process surrounding MiFID II / MiFIR. Equally concerning is that 70% of respondents thought institutional investors have had little or no influence in the process, with only 6% expressing the belief that the buy-side has had a “significant” or even “modest” influence.

Investors approached in the study were divided on whether the broker community had been influential in the process, with 43% saying they had little or no influence and 38% believing that the sell side had modest or significant influence. In contrast, the Greenwich Market Pulse reported that 70% of respondents thought that European stock exchanges had a modest or significant influence on the direction of MiFID II regulations. Remarkably, 68% of respondents said that stock exchanges had a greater influence on the regulations than the regulators themselves.

At the center of the ongoing MiFID II / MiFIR negotiations are proposed rules around areas such as high-frequency trading, tick sizes, the ability to access broker crossing networks, and the availability and cost of post-trade market data. While these subjects are technical in nature, they also have political ramifications that are not lost on any of the regulators and policy makers.

“There is no doubt regulators are being cautious and want to ensure every possible avenue of excess risk-taking is looked at very carefully. Balancing that with institutional investors’ aspirations remain a challenge,” said Greenwich Associates analyst Kevin Kozlowski.

Buy-Side Expresses Concerns About OTFs
MiFID II / MiFIR introduces a new type of regulated trading venue, the Organized Trading Facility (OTF). By introducing the OTF, the regulatory proposals seek to improve the transparency of trading activities in equity markets, including “dark pools.” Under the current proposals, an OTF operator, which is usually a broker-dealer, would be prevented from trading against its capital. But this could lead to drying up of market liquidity to the detriment of institutional investors. For this reason, the OTF rules are a political hot potato.

The response from the buy-side community is clear on this issue. Sixty-four percent of the institutional investors studied by Greenwich Associates said that their ability to execute in dark pools or crossing networks would be negatively impacted, while only 11% thought the rules would have a positive impact in this area. Without the ability to trade large blocks with brokers, there is a concern among the buy side that it will be much harder to conduct business efficiently. Seventy-four percent of respondents said that access to traditional over-the-counter services, such as capital commitment and block crossing, would be negatively impacted by the proposals. Only 4% said that the proposed rules would be helpful.

New Rules Could Lessen Access to and Increase Cost of Pre- and Post-Trade Data
Forty-two percent of respondents had concerns that the MiFID II / MiFIR regulations would negatively impact their ability to access pre- and post-trade data on reasonable terms, compared to 13% who believed they would have a positive or very positive effect. Broadly, traders have been asking for a single consolidated tape that brings together prices from various venues. The net effect would be less cost incurred on price discovery by trading firms.

Divergent Views on Impact of Minimum Tick Size
To curb serious arbitrage-related volatility in the markets, MiFID II has recommended imposing a minimum tick size in less liquid stocks in Europe. A tick size is the minimum increase by which a share price can move higher or lower. High-frequency traders have collectively brought down tick sizes over time to attract liquidity, but it has also led to excess volatility and driven some investors out of certain market names, regulators contend. MiFID II has also mooted a minimum resting period for which an order remains open on an exchange reduction in tick sizes. The study reveals divergent views on how much benefit these restrictions will bring to end-investors.

Press release

bc

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Roundup: Hedge funds shrink as liquidations outpace new launches in Q1: hedge fund news, week 27[more]

    In the week ending 17 May, 2016, HFR said hedge fund liquidations declined narrowly to begin 2016 after rising sharply to conclude 2015, as investors positioned f

  2. Europe - Hedge funds keep powder dry over big Brexit bets, Hedge funds sense profit in Europe shock waves after Brexit vote, Soros warns Brexit may cause pound plunge worse than Black Wednesday, After Brexit: What will happen if Britain votes to leave the UK?[more]

    Hedge funds keep powder dry over big Brexit bets From FT.com: Hedge funds are shying away from big bets on Brexit, with many unwilling to risk further losses having already suffered a painful first half of the year. With the outcome of a UK vote on the country’s membership of the Europea

  3. News Briefs - ’Flash Boys’ get green light to launch stock exchange, Pimco says ‘storm is brewing’ in U.S. commercial real estate, Bankers get ready to rumble at Hedge Fund Fight Night, AIMA Australia celebrates 15th anniversary[more]

    ’Flash Boys’ get green light to launch stock exchange In an investing environment ruled by fast, the newest U.S. public stock exchange is banking on slow. Well, slower. IEX Group, which won Securities and Exchange Commission approval on Friday to go head-to-head with the New York Stock E

  4. Blackstone buys minority stake in New York-based credit hedge fund Marathon[more]

    Benedicte Gravrand, Opalesque Geneva: Blackstone Strategic Capital Holdings Fund, a vehicle managed by Blackstone Alternative Asset Management (BAAM), has acquired a passive, minority interest in Marathon Asset Management, for an undisclosed sum. Based in New York,

  5. Global markets fell, hedge funds gain in mid-June on Brexit, Fed rate concerns[more]

    Komfie Manalo, Opalesque Asia: Global financial markets declined through mid-June, as uncertainty associated with the upcoming Brexit referendum and expected U.S. Fed interest rate hike contributed to increases in volatility across asset classes, data provider