The new regulatory requirement of MiFID II has been in effect for six months and it appears to be working. This recent Bloomberg article really caught our attention as it highlights an astonishing +70% increase in the reported trading volumes for European ETFs.
Quick refresher on MiFID II…The European Union implemented the Markets in Financial Instruments Directive II (MiFID II) in January 2018. The legislation has its origins in the Global Financial Crisis and was created with the intent of increasing market transparency via rules on everything from unbundling research and execution costs to dark pools and derivatives. The ultimate goal of MiFID II is to make the financial markets more efficient and transparent and to strengthen protection for the investor; noble goals, indeed.
Back in October 2017, we discussed the potential impacts MiFID II might have on U.S. asset managers. While those impacts still play out, this Bloomberg article points to some early success for the legislation.
Consider the following highlights:
- Transparency increased by +70% for ETF trade volumes as off-exchange trading was now published for the first time
- For the month of May, off-exchange trading of ETFs eclipsed exchange trading by 4 billion euros (65 billion euros vs. 61 billion euros, respectively)
While not perfect in capturing 100% of ETF trades, it is still a major improvement in understanding trading volume. With more and more trading being done in dark pools, the importance of price discovery gets lost. MiFID II was intended to increase trading in the lit market and increase market transparency. After six months of implementation, it appears to be succeeding.
As international equity investors, the team at R Squared Capital Management (former team at Julius Baer / Artio Global) utilizes fundamental and macro analysis in our quest to correctly identify structural tailwinds and headwinds at the geographic, sector and company levels.
FROM THE DESK OF ELYSE WALDINGER
Elyse Waldinger is a Partner and Chief Operating Officer at R Squared Capital Management.