Fri, Apr 25, 2014
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   |   
Banner
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 Exclusive: Rainwater and Blue Sky - an Australian water fund emerges[more]

    Bailey McCann, Opalesque New York: Financial reporters often tout new funds and investments as uncorrelated investments, but few can say they are uncorrelated to everything but weather. Enter Blue Sky Alternative's water fund which invests in the permanent rights to Australia's water. Sev

  2. Regulatory – Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades, Alternative funds to get SEC test for leverage, liquidity[more]

    Expect greater SEC scrutiny of hedge funds that share information or collaborate in advance of their trades From Thelawyer.com: A recent Wall Street Journal article — ‘Activist investors often leak their plans to a favoured few’ — focused attention on ‘activist’ investors and stock analy

  3. …And Finally – This week's least competent criminal is Austrian[more]

    From ABCnews.go.com: A German sought by authorities for alleged fraud has been arrested in Austria — after dropping into a police station to ask officers whether he was under investigation. Police in Salzburg said the 59-year-old man walked into a police station in the city on Friday night. Sp

  4. Investing – Hedge funds find pitfalls along with profits in real estate ventures, Marcato Capital Management makes new bet on Dillard’s[more]

    Hedge funds find pitfalls along with profits in real estate ventures From Law360.com: Hedge funds have joined the rush to real estate deals and development in recent months to close the financing gap left by tightening bank standards, but attorneys say many aren't prepared for the disclo

  5. Agecroft Partners estimates 90% of hedge funds using social media[more]

    The use of social media has increased significantly within the hedge fund industry over the past couple of years. Social media is broadly used by investors as part of their due diligence process on hedge funds, by service providers in their sales efforts to hedge funds, and by hedge funds to enhance