Mifid can give edge to early adopters
South African asset managers that at an early stage adopt Europe’s Markets in Financial Instruments Directive (Mifid) 2, intended to improve competition and investor outcomes in financial markets, may be at a competitive advantage.
Asset managers globally were becoming "Mifid-aligned", even though this regulation applied only to fund managers with products in the EU, said Rebecca Healey, Liquidnet’s head of market structure and strategy in EMEA.
The more asset managers that made the shift, the more indefensible it became to the end investor to not be aligned, Healey said on Monday.
Liquidnet, the owner of the world’s largest dark pool, will meet some of SA’s largest asset managers this week. Liquidnet enables institutional investors to trade large buy and sell orders directly with one another away from public exchanges. It has 12 member firms in SA.
One of the most noteworthy changes under Mifid 2 is "unbundling", which requires brokers to price research and execution separately, rather than bundle the two services together and be paid a flat brokerage fee.
This is aimed at ensuring that asset managers place client trades with whichever broker is able to provide the best execution of that trade, rather than with a broker that might give the most insightful research.
While the cost of research could be charged to clients, a number of European asset managers had elected to absorb the cost, said Mark Pumfrey, head of Liquidnet EMEA.
Commission-sharing deals between brokers and managers in SA, whereby managers pay only for useful research and not more as a function of higher trading volumes, achieve a lot of what Mifid 2 was trying to achieve, Brian Thomas, co-portfolio manager and analyst at Laurium Capital, said in a Glacier research note. Considering the close relationship between financial regulators in SA and the UK, it would not be surprising if a form of Mifid 2 came to SA, assuming its implementation was successful in Europe, Thomas said.
Mifid 2 made asset managers more competitive and robust, enabling them to differentiate themselves, said Healey.
Liquidnet services more than 890 of the world’s biggest asset managers, which collectively manage $15-trillion.