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MiFID II countdown: What U.S. firms need to know

John Mason

16 Mar 2017

MiFID II A Bald Eagle is seen at Cabarceno nature reserve near Santander in northern Spain
Photographer: Victor Fraile

With the influence of MiFID II stretching beyond European borders, what must North American companies do to ensure they have the technology and expertise for compliance?

MiFID II, which comes into force next January, represents a fundamental change for financial markets across a multitude of areas.

But it won’t just be in Europe where firms will be scrambling to work out how the expanded transparency and consumer protection regime will affect them.

Find out more about the effect of MiFID II across the financial spectrum

Capital markets are increasingly global, so it’s impossible to contain regulation within geographic boundaries. When Asian and American firms do business with European customers, MiFID II will necessarily impact those interactions.

For North American firms that either have subsidiaries, risk exposures or trade through European markets, the legislation will require them to engage with and report to European regulators and counterparties.


Beneficial or exposed?

Under MiFID II, non-European entities including those in North America are impacted by a “Beneficial” or “Exposed” criterion. They are either:

  • Beneficial (ultimate) owners of European-based companies, or beneficiaries of funds or portfolios of European investments.


  • Have “exposures” through MiFID II-mandated European assets that are held, bought or sold on European regulated exchanges and platforms.

Watch recording of webinar — MiFID II: Data for transparency 

North American firms with investments and/or ownership of companies outside their domestic market are highly likely to have exposure and obligations under MiFID II.

For example, a U.S. broker-dealer executing orders originating in Europe may be asked by the European counterparty to provide audit trails for trade surveillance on executions in dual-listed securities.

For U.S. and Canadian companies, the prospect of meeting the MiFID II compliance obligations and technical standards can be daunting, and will require significant expertise and technology to manage.

Leveraging tools such as real-time analytics, sophisticated alerting capabilities and increased automation will help ease the burden of satisfying MiFID II requirements.

Find out more about the effect of MiFID II across the financial spectrum

Unbundling research

One of the most significant provisions of MiFID II requires asset managers to expressly separate, or unbundle, their trading commissions from investment research payments.

In order to continue paying for research alongside executions, asset managers will be required to set up a research payment account (RPA), representing a fundamental change in the way they budget, price and pay for research.

North American firms that have not already begun taking steps to make the necessary changes should do so in order to meet changing investor expectations.

Watch video MiFID II: The obligations, the challenges and looking ahead post implementation

According to a recent ITG survey of buyside professionals, more than half of asset managers in North America do not expect MiFID II to directly impact them, though 82% of North American firms plan to “fully unbundle all of their brokers globally.”

In addition, 59% plan to continue paying for research using commission sharing arrangements (CSAs), while 33% expect to use a combination of CSAs and RPAs for payments. Eight percent plan to set up a new RPA ahead of the MiFID II start date.

Your regulation questions answered with Risk & Regulatory Data Solutions

Extending best execution

MiFID II defines best execution as the obligation on firms to “take all sufficient steps to obtain…the best possible result for their clients taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to execution”.

It extends the requirements of best execution across all asset classes while simultaneously establishing a greater number of venues to aggregate.

The regulation mandates execution venues, as well as market makers and systematic internalisers, to publish execution reports as stipulated by the Regulatory Technical Standard (RTS) 27 included in MiFID II.

This change from MiFID I suggests a formalization of the best execution approach and also highlights that regulators will be expecting firms to place a greater focus on this requirement.

In addition, buy-side investment firms must also publish execution reports under the RTS 28 standard.

Find out more about the effect of MiFID II across the financial spectrum

MiFID II quotation

Better transparency

Regulators are demanding an increasing amount of data at a faster pace than ever before in order to provide better transparency to consumers.

To keep up, companies in North America and around the world must learn to use technology to automate processes previously handled by humans in order to lower costs and gain a competitive edge by mining that market data.

Organizations that have yet to seek guidance on compliance policies and implementation should act now.

The clock is ticking to January 2018.

What’s the future of investment research? What MiFID II issues lie ahead for Europe? Debt capital markets: No panic as the ‘old normal’ returns Adjusting for the optimism of the sell-side analyst Asia Pacific Summit: The upsides of buy-side The platform to digital transformation in financial trading MiFID II progress summary report: Why there’s still work to do MiFID II best execution: Are firms ready for RTS 27 and 28? Powering asset management – Overcoming research unbundling Regulatory intelligence: Unlocking value in content