MiFID II, multi-asset trading among key themes at Fixed Income Leaders Summit

Several key themes emerged from the sessions at the Fixed Income Leaders Summit last week in Barcelona. Below are the two of the major themes: Regulation - MiFIR/MiFID II dominated the agenda Following last month’s RTS release, most people wanted details on the impact to their business, likelihood of changes to the ESMA document and if there will be a push back to the January 2017 start.

• While European sell side and large buy side have been engaged in varying degrees with the process, US firms and smaller European buy side firms are still not clear that Europe is boiling the ocean with MiFIR/MiFID II.
• It was clear that buy side preparation for engaging with the evolving execution space OTF/MTS/RM and SI is extremely low. And of course, the reasons are clear—there is a fundamental lack of clarity on expectations to operate in the new regime as well as the actual timing when these requirements will be manifest.
• While the debate to finalize and accept the RTS proposal from ESMA occurs, there is tremendous confusion on final requirements. Without a delay to the January 2017 implementation, the longer the debate, potentially the less time firms will have to prepare and implement to the final required state.
• The top concern that the buy side had was the fear that their traditional market making liquidity providers will exit the credit and rates markets and the liquidity from alternative providers,and in platforms, will not be sufficient to satisfy their trading needs.

Multi-Asset Trading Most buy side firms are looking to leverage the best tools that exist from other asset classes into their daily workflows in fixed income products. While all were cognizant of the deep differences between equities, FX and the fixed income universe, the buy side was engaged in discussions on the details of the regulatory, market structure, liquidity, and technology challenges; and clearly were looking for multi-asset solutions for fixed income connectivity, analysis and TCA.

• Firms were deeply engaged in discussions that shed light on the process that other asset classes went through, and how that process played out. There is a great deal of trying to understand the context of the MiFIR/MiFID II change with lessons from other recent regulatory changes. There was a strong desire to understand the implications of Regulation NMS on US equities and the respective market structure, fragmentation and technology implications. Likewise, MiFID I and the SEF rules in the US and the move to centrally cleared swaps and derivatives in the US was another area that was discussed to glean lessons for changes that might come to Europe.
• Europe is boiling the ocean in fixed income with MiFID II and firms are trying to understand the myriad changes, the timing of change, and the many complicated means of judging the type of rules that will apply in government and corporate bonds.