Under MiFID II rules, which take effect in January, traders in the European Union will have to report a host of information to demonstrate they’re executing clients’ trades at the best prices and in the right venues. Tracking those details is faster and cheaper when the trades are done by computer, rather than by shouting down the phone.
For securities firms, one of the biggest challenges will be setting up systems to move from a voice-driven trading environment to one that’s increasingly digitized to meet MiFID II’s data-reporting requirements. A number of financial technology companies have popped up to assist banks, brokers and asset managers conform to the new standards.
However, there are illiquid markets, such as interest-rate and credit-default swaps, where voice broking will probably remain the norm. Chris Barnes, senior vice president for Europe at Clarus Financial Technology, based in Geneva, said he expects only a third of the euro interest-rate-swaps market to move to electronic trading starting in January. Yet overall, MiFID II’s requirements for greater transparency in record-keeping, pricing and execution stand to make voice trading more costly and complicated.
“The industry is seeing big changes coming,” said Ashlin Kohler, who heads European rates & credit e-commerce for fixed-income market structure at Citigroup. “The regulators want to encourage venue trading, and venue trading tends to be electronic.”