EU launches last crisis-battling finance reform

’MiFID II,’ the last of the big reforms sparked by the financial crisis, entered into force Wednesday with the promise of improving financial market transparency. (Reuters)
Updated 04 January 2018
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EU launches last crisis-battling finance reform

Paris: An EU directive called “MiFID II,” the last of the big reforms sparked by the financial crisis, entered into force Wednesday with the promise of improving financial market transparency and offering better protection to investors.
“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.


Some US manufacturers feeling China trade war pinch

Updated 16 July 2018
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Some US manufacturers feeling China trade war pinch

WASHINGTON: Some US manufacturers are delaying investments and raising prices as President Donald Trump escalates trade wars with key US economic partners but most companies report no change, according to a survey released Monday.
The National Association for Business Economics also found in its monthly report that members unanimously expected economic growth to continue in the next year, with most forecasting inflation adjusted growth of more than two percent.
“Labor market conditions are tight with skilled labor shortages driving firms to raise pay, increase training and consider additional automation,” Sara Rutledge, chair of the quarterly survey, said in a statement.
Companies reported rising profits and higher sales expectations. But despite the scarcity of workers, a survey index of wage growth slowed after hitting a record in April.
The survey, which polled 98 economists at private companies and trade associations, also found signs of rising prices, a possible sign that inflation and Trump’s new import duties were filtering into the economy.
An index of prices charged hit a 12-year record, jumping 14 points, while a measure of materials costs hit a seven-year record, soaring 15 points.
Trump this week began the process to impose tariffs on up to $200 billion in additional imports from China, adding to the levies imposed on $34 billion in goods which took effect earlier this month.
Economists say this could boost inflation, which already is beginning to rise after a decade of economic recovery, albeit gradually.
Still, a majority in the NABE survey, 65 percent, said trade concerns were not causing their companies to change plans for investment, hiring or pricing.
Things were chillier in the goods producing sector, however, with only 37 percent reporting no change.
Among manufacturers, 26 percent said they were delaying planned investments and 16 percent reported having to raise prices.
And, as the same survey had found April, most respondents, or 65 percent, said they were not changing plans to hire or invest because of December’s sweeping corporate tax cuts.