Capital Markets Union and Regulation in the spotlight at TradeTech 2015

April 23, 2015

Last week we travelled to Paris, where Cognito was again supporting WBR’s TradeTech conference. Well attended by the leading European brokerages and some of leading buyside firms in Europe, the agenda touched on some of the most important themes driving global equity markets, creating an interesting forum for discussion.

Our attention at this year’s event was drawn to the discussion around the recently announced European Credit Markets Union (CMU), and the ongoing regulatory process in Europe – in particular the new dark pool volume caps.

Less than a month after the House of Lords released its report suggesting that the UK should lead the development of an EU Capital Markets Union (CMU), we heard from Konstantinos Botopoulos, Chairman of the MISC Committee and member of the ESMA Management Board, who discussed the future plans for a CMU. During his speech Botopoulos conceded that the last five years have seen the industry hit with what has been termed as a ‘regulatory tsunami’, with restrictions on business that has been wide spread and seemingly never ending.

Botopoulos gave everyone at the conference some hope for the future by emphasising the new phase of growth and improved capital flow that we are moving towards in the EU.

As we know, the CMU hopes to regenerate the securitization industry – a move which may make some anxious given the part this played in the financial crisis – in order to improve the flow of capital, and encourage more investment into the EU from the rest of the world.

There will of course be a lot of challenges along the way, particularly from a regulatory perspective. It is crucial that any CMU policy is compatible with MiFID, and there are concerns that when trying to create new legislation the CMU will find itself restricted by laws that were originally passed for MiFID I. The only solution is to try and incorporate the necessary changes to the law through MiFID II, which will come into effect on 3 January 2017.

As is usually the way at TradeTech the topic of regulation played a central role. Many of the discussions at last year’s conference centred on High Frequency Trading, and while there are still some concerns in that area (we heard from Peter Kovac, the author of Flash Boys: Not So Fast, a book that attempts to discredit Michael Lewis’ theory of market rigging put forward in Flash Boys), this year the discussions focused more on the issues presented by MiFID II. One speaker said that it felt as though there weren’t enough hours in the day to deal with all the regulatory requirements. However, investments in new technologies and improved processes are beginning to make a difference to the day to day dealings with regulations.

The emphasis on the problems caused by data reporting also remained as strong as ever. With the quality of data supplied by companies being a key component for the success of any regulation, this seems to be an area that still causes concern for many.

Additionally the new dark pool volume caps under MiFID II caused quite a stir, as the London Stock Exchanged released findings that showed if the caps (the amount of trading in a stock that can take place in one dark pool is 4%, and 8% across all dark pools on a rolling 12-month basis) had been in place last year, all but one of the FTSE 100 stocks would have broken them, along with around half of the FTSE 250. This would have resulted in a ban from trading in the dark for six months for any stock involved.

Having played an active role at TradeTech for the last seven years, managing the media relations for the event itself and supporting our clients there, we’ve seen the conference go from strength to strength. This year was no different and presented a good selection of speakers including Sir Jonathan Evans of Weardale, ex- Director-General of MI5 and Non-Executive Director of HSBC and Markus Ferber, Member of the European Parliament. Leading world banks were joined by a wide range of financial and trade press, resulting in excellent media coverage of both the event itself and the companies in attendance.

All in all it was another great year for TradeTech, both in terms of content and networking opportunities, and we’re already looking forward to next year’s event.