Happy MiFID Day! One more step on the road to Damascus?
I’m sure there is a sense of relief today in the City – in a “buy-the-rumour-sell-the-fact” kind of way as the long and tortuous road to MiFID (the Markets in Financial Instruments Directive) has finally arrived at its long awaited (and feared destination.) While it is far from likely we have seen anything more than the “end-of-the-beginning” as to how this will impact market structure and the financial services industry, there is likely to be a collective pause for breath as the initial finishing line has now been crossed. The Economist flagged this week that:
…For all this, big banks are unenthusiastic. Their churlishness about MiFID is not only because of the costs, but also because of the transparency it entails. The anonymity that came with dealing off-exchange meant that pricing became part of a bank’s intellectual property…
Now I’ve been shouting from the rooftops for several years now that increased transparency (in financial markets) was as inevitable as the sun rising in the east; driven by the information and communication technology revolution, the ubiquity of (freely) available information was only going to increase and exponentially so and any efforts to reverse or slow this trend would ultimately end in abject failure. I still believe this to be true – although I am not so naive to think that powerful market participants and/or regulators cannot influence the ‘local’ speed of this transformation. However cynical it may be, I also understand that (resistance to increased transparency) may indeed be in the short term interests of these players but ONLY if this is pursued as a stalling tactic to better prepare and adapt to the inevitable disruptive paradigm shift. In my opinion however this is not at all the sentiment that has prevailed in most executive committees of large sell-side institutions; the strategy has seemed to verge more on the let’s-hold-on-for-as-long-as-we-can (and implicitly…let-my-successor-deal-with-the-fallout…) In this context, I think the big banks should be quietly thanking the Commission and Mr McCreevy for giving them an excuse to start making the changes they would have needed to make anyways, before they were completely exposed to disruptive new entrants with business models perfectly aligned to the new techo-economic paradigm. Any business model who’s foundation is built on the premise of information scarcity will not live to see the middle of this century.
I can only applaud (while noting the irony) of the Damascene Conversion that this summer’s market turbulence seems to have sparked in some of the world’s top investment bankers. While I like to poke fun at the sometimes pre-Cambrian behavior of investment bankers, I also know it is unwise to sell them short and have always been impressed by their shameless pragmatism (which – in case it’s not clear – is ultimately a wonderful survival gene and something to be admired.)
