MiFID “Best execution” directive

[gle101]

Like I said from the start, don't go getting all excited about some new protection guys - will say this again once more for the hard of hearing at the back - IT'S NOT REALLY AIMED AT RETAIL TRADERS!

Clear enough?

This has been a very useful thread, and I am in no way trying to knock the contributions made thus far (I have learned a few new bits and pieces for sure) but I did say from the beginning that this is not where the focus is for the FSA or indeed Brussels.

GJ

Could you please point out in which part of the MiFID directives, where it states it is not aimed at retail traders.

 

[gle101]

Incidentally, why do you think this is 'infancy'?

Personally, as someone who has managed an E-Commerce book I couldn't disagree with you more. I'm not trying to paint the SB firms as whiter than white here, but there is a very key point that that policy makes, and it's one that the retail community just doesn't seem to grasp.

Liquidity in broad terms in the FX world is huge, but that isn't at all the same as saying liquidity at any given instant at any price point in any currency pair is infinite. So if as a market maker I am asked to quote a two way price in say EUR 25m, the spread won't be the same as if it was EUR 100m (as the cost of my exiting the position will almost certainly be greater). Thus if a retail trader is being streamed a continual 2 point price in EUR/USD, that 2 point spread isn't good for an infinite amount of Euros, as there aren't an infinite amount of Euros available to the SB firm to get out of that position.

In interbank / wholesale circles if I hit a bank's price and it isn't my full amount (i.e. if 2 seconds later they get another call from me asking for a price in the same amount, or if, as some hedge funds do, I conduct what's called a 'drive by' and call like 10 banks at once in $30m rather than one bank in $300m), I would expect angry phone calls.

This is what a lot of the retail community don't seem to understand - much of the wording there is protection for the SB firm against the prospect of some mass co-ordinated action whereby 100 clients get together in some chatroom and say we're gonna spank EUR/JPY today at precisely 3pm or whatever. Then they all hit their respective platform in small size repeatedly, leaving the SB firm(s) caught long and wrong with no way of getting out of their position at anywhere near the rate they got in.

You can't have your cake and eat it guys - any price is always good for a certain size. It's not a conspiracy, it's just the facts of life.

GJ

I think it is high time to put aside the old structures of betting. The license to "print money" period is over. Financial spread betting will become more demanding for Market Makers in order to live up to, and be in line with the rest of the financial community. I am quite sure that the financial spread betting industry will evolve as spread betting is moving into mainstream activity.

I certainly get your point here. But I was not referring to coordination of an action among hundreds of traders. I was referring to short term single traders who get put on referral to a dealer (or other client specific tricks) based on their trading style. I absolutely understand that the Market Maker has to protect their odds and spread. Network latency is a problem but to blame the client indefinitely for taking advantage of this and other similar scenarios is not fair play. Remember the SB company has a spread that is in their favor. At the end of the year it is very clear who comes out on the winning side. It is not the SB traders community as a whole, that is for sure! I have no problem with that, but if their actions against some clients give the SB company an unfair advantage, I am very highly against that.

I would in fact say it the other way around, that the SB company can not always have the cake and eat it too.

 

[Jack o'Clubs]

...the only way forward imho is a peer to peer centralised exchange for the retail community. And the technology is absolutely already here for that, it just needs some bright spark to start it.

GJ

An interesting thought GJ. Not sure how successful the Betfair financials have been: I know it is only binary betting rather than a full market, but when I looked at it (a long time ago), its forum seemed to be full of moans about lack of liquidity, bots hoovering up the value, etc. ie just as many complaints but about different things... Would be very interesting if someone gave it a go though.

 

[lurkerlurker]

I've received revised Terms of Business and a copy of the new execution policy for every SB account I have except TradIndex. Are they changing anything to come into compliance with MiFID? When can clients expect to hear anything?

 

[The Pear]

Betfair, Spreadfair - its here alrady. The battle will be for liquidity provision. Incidentally I was under the impression that mifid was specifically for retail clients specifically with regard to order exection where a firm acts as agent (broker). The rules have been rushed out without due care for OTC products acting from a single venue. SB firms need to maintain their identity as 'bookies' otherwise we will all loose - ie no CGT exemption.

 

[gle101]

Incidentally I was under the impression that mifid was specifically for retail clients specifically with regard to order exection where a firm acts as agent (broker). The rules have been rushed out without due care for OTC products acting from a single venue. SB firms need to maintain their identity as 'bookies' otherwise we will all loose - ie no CGT exemption.

Financial spread betting products are regarded as financial instruments, and thus comes under the MiFID directives. Whether they are 'bookies' or not makes no difference as I see it. Also the FSA are using the terms "Financial spread betting firms" in their papers. I have, during the last few days, received a number of emails from SB companies, who say that they will comply with the MiFID directives which come into effect on the first of November. The SB industry is clearly taking a standpoint on the MiFID directives. The question is not if, but how they will implement the "Best execution" directive.