European Exchanges Emerge as Biggest Winners from Mifid II

The Markets in Financial Instruments Directive came into effect in 2007, a few months before the outbreak of the global financial crisis. Back then, it was merely a first attempt by the European Commission to harmonize regulations between laws imposed by the European Union’s separate national authorities.

Mifid’s revision, however, a package of rules known as Mifid II and initiated by the European Parliament in 2010, had to take into account the radical changes the global markets have undergone. Hence, its design proved to be a lot harder to codify than Brussels had initially thought.

The primary goal of both the Commission and the European Securities and Markets Authority (Esma) was to transform European markets into an open, transparent and safe environment for global investors. This goal, however, meant that it had to further regulate markets participants that were already heavily regulated.

Christoph Boschan, Wiener Börse’s CEO, told Waters in an interview published in August this year, that when revising Mifid II, the regulators overlooked the fact that national exchanges had remained operational and accessible during the whole course of the crisis. “They were a safe haven for the market infrastructure,” he said. “It is one of the biggest ironies in the financial markets that those who contributed the most to the market stability have suffered the most from regulation.”

Despite this sense of “unfairness” that most national stock markets and private exchanges seem to share, they realized during the course of building their compliance strategies, that Mifid II in all its complexity could prove exceptionally beneficial for their business operations.

Lens of Opportunity

In that sense, Bats Europe has spent a significant amount of time, money and energy in rolling out the necessary new software to meet its regulatory requirements. At the same time, the firm also worked hard to provide compliance solutions for its clients.

“We also looked at Mifid II through the lens of opportunity and assessed what we could do from a business development perspective to bring new products and services to market, to help participants comply with some of the changes the new regulation will bring,” says Mark Hemsley, CEO of Bats Europe.

According to Hemsley, the company rolled out some critical tools for the market during Bats’ own preparation. The result was an array of solutions for both buy-side and sell-side firms.

“Some of these new offerings include our new block trading platform, Bats LIS, and our Periodic Auctions book, both of which provide market participants with new ways to trade in larger size, which we think is important given that dark pools will be capped and the broker crossing networks will be closed,” he says. “We’ve also expanded the capabilities of our trade reporting facility to offer an assisted reporting service for buy-side firms that need to comply with new reporting obligations under Mifid II.”

Spain’s primary stock exchange, Bolsas y Mercados Españoles (BME), followed the same route and transformed the demands of the regulation into leverage for growth, expanding its operations and offering new services for its trading members.

Beatriz Alonso, equities markets director at BME, says that Mifid II helped the firm explore unknown territories and create brand new products. “Information is the key element of Mifid II, and in order for our clients to be able to meet the management of such large amounts of data, we were intrigued to create solutions for them in the fields of transaction reporting and record keeping,” she says. “In the end, we were able to become information providers for the post-trade industry.”

Long Awaited Reality

Even for smaller national exchanges like Athens Stock Exchange, the new regulatory landscape is a much anticipated and long-awaited reality that promises to favor fair business practices.

For Greece’s long-running financial drama, Mifid II is expected to have a substantial impact on Athex’s plummeting investing numbers, helping in turn to boost its international outlook.

Pantelis Lamprou, director of strategic communication and markets analysis, says that because of Athex’s size, it is not only a strategic move to be aligned with Mifid II, but also a national and business target. “Greece has 200 billion euros in loans to the banks and 120 billion in deposits; we need money for investments to our country, and this money has to be brought from other countries,” he explains. “To do that, we need to become attractive in terms of quality of services and valuation, but also in terms of quality of the investing environment. The foreign investor needs to be able to feel secure, to feel that the environment is safe, transparent and recognizable. Mifid II offers exactly that.”