European Union rules to give people a wider choice of investments at cheaper prices came into force on Thursday with a patchy launch that is likely to give some firms a headache.
The rules form the cornerstone of the EU's attempt to weave together 27 national financial markets by giving firms a "passport" to offer their products and services anywhere in return for stiffer investor safeguards. They are the biggest change for securities markets in over 20 years and tear down barriers to trading, ending a monopoly exchanges in France, Italy and Spain have enjoyed in domestic share dealing.
Market specialists said the biggest change so far is in data provision through BOAT, a stock trading platform owned by top banks. "This is a fairly major change but there are no seismic changes otherwise. We weren't expecting a big bang," said Andrew Allwright, head of marketing and business divisions at Reuters, adding that while there had been teething problems, there were no serious issues.
Additional documentation required under MiFID from clients is likely to pose problems for some of the larger financial services groups, according to MiFID Connect, a London-based industry group.
"Firms with a larger client base will need to get back documentation from their clients. It is not going to happen today," said Anthony Belchambers. "They (the firms) have not been allowed enough time."
The European Commission said this week a third of member states would not be ready, even though the deadline was January for introducing MiFID into national law so that companies had a full nine months to complete complex preparations. Brussels launched legal action against 24 EU states for being late with the rules, which were seven years in the making. Some reporting aspects were delayed until next Monday to give firms an extra weekend.
Belchambers said he hoped the Commission learned a lesson from the MiFID implementation about how to introduce financial services regulation. "We said we would need at least a year to implement the changes," he said. "The single financial market doesn't turn on rules, it turns on implementation ... as does its credibility."
Nobody had predicted chaos in bond and stock markets and a Brussels-based trader said on Thursday that he had hardly noticed the changes. "MiFID starts officially today but we know the real changes will only come gradually."
Information technology staff are likely to find the rules a headache, however. "We've seen a constant underestimation of the changes that will be needed to introduce IT systems," said Belchambers. "There's also an underestimation about education and the amount of technical regulation needed to makes changes to systems."
The limited "passports" allowing investment firms and exchanges to operate under the rules MiFID replaces will continue under emergency measures that national watchdogs adopted this month to handle laggards. Still, some firms will not be allowed to offer the full range of MiFID services until their home country is fully compliant.
"This should not lead to any major difficulties but it does lead to exacerbation of legal risk and firms need to be careful about what they are doing, especially if they are not in compliance with customer facing rules," Belchambers said. Regulators will likely take a softly approach in the first few weeks to give firms and countries time to get up to speed.
The EU believes MiFID will eventually boost EU economic growth by 1.1 percentage points and create new jobs as trading volumes rise and cheaper products attract new customers.