EU launches last crisis-battling finance reform
EU launches last crisis-battling finance reform
“MiFID II marks a real watershed moment for financial regulation,” said Catherine McGuinness, head of the City of London Corporation lobby group.
“It will be the last major piece of regulatory reform following the financial crash of 2008,” she said in a statement Tuesday, adding that “financial and professional services firms have worked hard in recent times to implement these onerous and complex changes.”
It is that very complexity that caused the implementation of the directive, first planned for January 2017, to be postponed by a year to give companies time to adapt.
Some financial market operators in Germany, Britain and France were given even more time, in some cases until July 2020.
Adopted in May 2014 the new rules — whose full name is “Markets in Financial Instruments Directive” — are to address the weaknesses that became apparent during the financial crisis of 2008 and 2009.
They also aim to give retail and institutional investors extra layers of protection.
“The new rules will subject all businesses involved in the distribution and trading of financial instruments across Europe to a changed, and in many cases, more stringent regulatory framework,” rating agency Standard and Poor’s said Wednesday.
“Over the longer term, the disruptive nature of this major regulatory change will become more apparent, and the winners and losers will likely emerge more clearly,” said S&P analyst Giles Edwards. “There will likely be more losers than winners.”
Banks, asset managers, brokers and other market operators will all have to grapple with the new measures and supply proof to supervisory bodies that they are playing by the rules.
This implies, among other things, major new information technology capacity and a deep transformation of workflows to guarantee the viability of information.
For example, the directive forces companies to identify their target investors for each type of security on offer, and measure the level of financial knowledge of customers and their capacity to take on risk.
It also extends protection measures to professional investors that were previously granted only to retail investors, and obliges them to warn clients in the event of strong volatility in their investments.
The directive also strengthens transparency requirements for share investments and broadens them out to other financial instruments, including bonds and derivatives, trades in which must now be reported before and after each transaction. Failure to do so will result in fines.
Financial companies will also have to provide detailed information to clients of the cost of trading in financial instruments, notably by separately identifying charges and commissions.
The aim is to shed more light on the earnings of intermediaries and limit over-the-counter deals seen as too opaque.
There will also be additional controls over electronic trading at great speeds, such as high-frequency trading.
In addition, the directive obliges banks and brokers to charge for research notes written by their analysts for investment fund clients and portfolio managers.
Such notes help investors make informed decisions on companies or economic data.
Research is often used as a marketing tool by banks and brokers when they approach clients but its price is a topic of debate, as is what goal banks and brokers are actually pursuing by disseminating their insights.
“The question the regulators are asking investment banks is: Who is your client?” said Maxime Mathon, head of communications at research body AlphaValue.
“When you are a big investment bank working for an asset management company you sell it your research, but also conferences with management of this or that company. In fact you are at the crossroads between the issuer and the investor,” he told AFP.
It follows, according to Mathon, “that you are no longer independent because you are selling access to a company more than you are selling critical research on that company.”
MiFID II’s call for a breakdown of research costs will, it is hoped, improve transparency.
Potential SABIC deal would affect Saudi Aramco IPO time frame, says CEO Nasser
JEDDAH: A potential deal to buy a stake in petrochemical maker SABIC would affect the time frame of Saudi Aramco's initial public offering (IPO), the oil firm's president and CEO Amin H. Nasser said Friday.
The IPO of around 5 percent of Aramco, which was initially to take place this year but is now more likely to happen later, would be the world's biggest listing, raising up to $100 billion.
Nasser said that buying a stake in a chemical company like SABIC would positively affect Aramco's revenue, Al Arabiya reported.
“We are still in the very early stages of the discussion to buy a stake in SABIC,” the Aramco CEO said.
“Aramco is ready for the initial offer and the timing remains subject to the state's decision.”
Saudi Aramco said on Thursday it is looking at the possibility of buying a stake in SABIC, a move that could boost the state oil giant’s market valuation ahead of the planned IPO.
Aramco said in a statement that it was in “very early-stage discussions” with the Kingdom’s Public Investment Fund (PIF) to acquire the stake in SABIC via a private transaction. It has no plans to acquire any publicly held shares, it said.
In a separate statement, PIF also said talks about a sale were in early stages. “There is a possibility that no agreement will be reached in relation to this potential transaction,” it said.