The TRADE 52 | Page 60

[ M A R K E T R E V I E W | M I F I D I I O V E R S E A S ] M iFID II may be the talk of the town all across Europe, but the regu- lation has been rather less high profile across the Atlantic, as some US investors put themselves at risk with their apathy. One US-based consultant told The TRADE that “north of 50% of investors here have no idea how it [MiFID II] will impact them”. Modern regulation tends to fea- ture many extra-territorial aspects that could trip up investors outside of the jurisdiction the regulation originates from. Similarly, many firms are now global in nature, either through owning subsidiaries or having trading desks in foreign “If you are trading through an EU broker or buying research from an EU institution then you will have to consider whether it falls within the scope of the rules.” DAN SIMPSON, HEAD OF RESEARCH, JWG markets, or by investing in foreign securities or simply because their counterparties have a global pres- ence. With all of the above in mind, it seems likely that there are very few, if any, US asset managers who will be entirely unaffected by MiFID II. The impact of MiFID on the US market can be placed into three broad categories; best execution, 60 TheTrade Summer 2017 market infrastructure and cross-border trading and research unbundling. Each of these areas will, either on a compulsory or voluntary basis, change the way asset managers in North America and other territories outside the EU do business. Beginning with best execution, this issue has long been on the agenda for US firms and is one of the aspects of MiFID II many will easily identify with. US asset managers are already obliged to seek out best execution on behalf of their clients, though MiFID II makes the rules significantly more demanding. Domino effect Increasingly quality of best execution in one jurisdic- tion has tended to increase standards across the board elsewhere too as clients become used to higher stan- dards from one of their asset managers and demand that others provide the same level of service. Joe Digiammo, a director at tech consultancy Sapi- ent, says: “We’re already seeing some trends towards better best execution in the US, with a growing num- ber of best ex tools coming to market, firms creating portfolio manager profiles to help understand the execution needs of a fund and more TCA being used.” Dan Simpson, head of research at JWG, adds that for North American firms executing in the EU, they will face a much stricter regime than they are currently used to. “Best execution will become much more difficult and technical to prove, with the burden of proof resting on the asset manager’s trading desk. It will require analy- sis of a huge amount of market data for any execution taking place in the EU,” Simpson explains. He adds that firms must be able to see and under- stand whether or not they are getting the best price on a trade. While market participants are encouraged that firms are already responding to the tighter rules on best execution, this remains the tip of the iceberg and is the one area where firms are by far most prepared re- garding MiFID II as they will already be familiar with it from existing US rules on best execution. Simpson