Mifid a failure say some traders

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LONDON – The UK Financial Services Authority (FSA) has met with traders and investment banks this week to discuss concerns that the introduction of the Markets in Financial Instruments Directive, which came into force on November 1, 2007, has caused UK equity trading to become less transparent – the exact opposite to what the directive intended.

According to Financial News, the Investment Management Association (IMA), which represents UK find managers, called a meeting with the FSA to discuss a lack of consistency in how trades are being reported. Representatives from the London Stock Exchange, Bloomberg, Thomson Reuters and trade reporting service provider Boat also attended the meeting.

The introduction of Mifid, traders argue, has led to a fragmentation of market data. Because equity trades can now be published in several different locations, they are also being published in several different formats. This has made is difficult for existing analytics, including transaction cost analysis and best execution verification, to be able to operate effectively, according to the IMA in a letter to the FSA after the meeting. This has also led to a rise in some market participants exploiting the new rules to hide larger trades, with London trades emerging on eastern European exchanges that are less likely to be noticed by the competition.

Through its dialogue with the FSA, the IMA is seeking to establish clear guidelines that determine how trades should be reported, because Mifid does not identify a standard set of rules for data reporting. The IMA is hoping regulators will rule on this, but the FSA and other regulators could be unwilling to do so in the push for greater self-regulation, and many would want the industry to come up with a solution instead. The IMA has proposed that a market transparency group be set up to identify areas where a UK approach to trade reporting is required.

The European Commission is due to launch a two-year investigation into the issue surrounding data reporting soon.

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