European Fixed Income and MiFID2: The Planets Are Not Aligned

by Joséphine de Chazournes, April 20, 2012
Industry Trends
EMEA

Abstract

Investments banks’ cash fixed income revenues are expected to be down 15–20% in 2013 from their 2010 levels. For some players, the extension of MiFID requirements in this environment could be the final nail in the coffin.

In a new report, European Fixed Income and MiFID2: The Planets Are Not Aligned, Celent analyses the evolution of the European cash fixed income market, the main MiFID requirements raising issues among market players, and what market players need to make the implementation of MiFID2 a success.

Investment banks will shift from cash-intensive credit and rates trading to more efficient flow and electronic trading, investing in heavyweight technology to provide the buy side with functionalities such as execution algorithms and smart order routers for fixed income. The numerous RFQ multiproduct trading venues will see a strong push from entrants with innovative business models. The buy side will have to invest more in electronic trading capabilities and possibly take on a liquidity-providing role.

“Extending MiFID requirements to the cash fixed income businesses in the current environment is dangerous,” says Joséphine de Chazournes, Senior Analyst with Celent’s Securities & Investments group and author of the report. “Liquidity is scarce. If the market structure does not evolve, many players may be driven out of business.”

This report outlines six developments that market players should be working on to make the implementation of MiFID2 a success in the European cash fixed income market.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Market Evolution

7

 

Market Microstructure

7

 

Market Size

8

 

A Shift in Business Orientation

10

 

Changing Market Dynamics

15

The Review of MiFID: Impacts for European Cash Fixed Income

21

 

Les Grandes Lignes

21

 

Pre-Trade Transparency

21

 

Best Execution

23

 

Transaction Reporting

34

 

Post-Trade Reporting

25

 

Clearing

28

The Keys to Implementing MiFID2 Successfully

29

Conclusions

36

Leveraging Celent’s Expertise

38

 

Support for Financial Institutions

38

 

Support for Vendors

38

Related Celent Research

39

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