This shake-up runs smoothly

EU REGULATION CHANGE Regulator says no big glitches so far.

The biggest regulatory change in Europe in 10 years got off to a comparatively smooth start as the chair of the European Securities and Markets Authority said he’s seen no teething problems. “What we can see, for our part, is no glitches so far,” Steven Maijoor said in a conference call with reporters. The rules mean that “for the first time we see data of all financial instruments in the EU”.

After seven years of preparation, $2 billion in compliance costs and one false start, the finance industry was bracing for one of the most seismic regulatory shifts in history, affecting everything from research to dark pools. Regulators eased the burden on companies ahead of the start period, giving grace periods on some of the biggest issues as banks and asset managers struggled to comply in time.

Investors have been sitting on their hands with trading volumes below average, though the first week of the year tends to be quiet anyhow. Client business at one major brokerage in Europe was almost non-existent as the rules were poised to take effect yesterday, a person with knowledge of the matter said.

“Reality is, it’s going to need a lot of refining as we see the market and clients take on the rules,” said Neil McLean, head of execution trading for Asia ex-Japan at Nomura’s Instinet Pacific Services in Hong Kong. “We have some challenges with categorising clients and making sure they receive only what the rules allow.”

His firm expects less business in the short term from Europe as clients get used to the rules, McLean said, adding that trading in Asia was quiet yesterday with Japan shut for the New Year holiday.

The rules present banks with opportunities to grow businesses offering passive investing, research and systematic internalisers but also leave them facing competition from research boutiques and platforms that offer low-cost trade execution.

Retail lenders may also suffer from the ban on some inducements for investment advice and portfolio management. That’s because banks that distribute mutual funds to their retail clients often receive and retain a portion of the initial sales charge from the fund manager, or receive an annual fee, S&P Global Ratings analyst Giles Edwards wrote in a note.

“Over the longer term, the disruptive nature of this major regulatory change will become more apparent, and the winners and losers will likely emerge more clearly,” Edwards wrote. “There will likely be more losers than winners.” – Bloomberg

Reality is, it’s going to need a lot of refining as we see the market and clients take on the rules. Neil McLean Head of trading for Asia ex-Japan at Nomura’s Instinet Pacific Services