The AMF confirmed it had fined Amundi Asset Management €25 million, its dealing division Amundi Intermediation €7 million and Tullett Prebon €5 million after finding they had manipulated the price on the Euro Stoxx 50 Futures (FESX) market.

Ludovic Delion, a manager at Amundi Asset Management, Gregory Saey, a trader at Amundi Intermediation and Thomas Vignon, a broker at Tullett Prebon, have all been issued with 10-year bans by the French authority for their role in the alleged activity.

According to the AMF’s statement, the three market participants made use of wash trades to manipulate prices and engaged in ‘cherry picking’, where orders are executed and then allocated to a fund depending on the gain or loss, at the expense of an identical fund managed on behalf of an institutional client.

An analyst note from Morningstar stated that “the atypical volume and repeated nature of the transactions caused clients a prejudice of €48.1 million”. Amundi has since reimbursed the client prior to the AMF’s decision.

The analyst note added that while Amundi recognises the AMF’s ruling has merit, the firm disputes claims of market manipulation and has appealed the decision.

The AMF continued that Amundi Asset Management, Amundi Intermediation, Delion and Saey had breached regulatory obligations related to recording and pre-allocating orders, monitoring best execution, managing conflicts of interest, exercising internal controls and detecting compliance risks.

The post Amundi and Tullett Prebon fined in France for alleged euro futures price manipulation appeared first on The TRADE.

Cazenave will begin her role as executive director of The European Securities and Markets Authority (ESMA) on 1 June this year for a five-year term, renewable once.

Cazenave is currently deputy secretary general and head of the policy and international affairs directorate at the Autorité des Marchés Financiers (AMF). She will replace Ross, the outgoing executive director at ESMA, who served the role for 10 years.

“I am honoured by this appointment and eager to work with the members of the Board and ESMA’s committed staff as the organisation begins a new phase of development,” said Cazenave.

The news of Cazenave’s appointment follows the recent stepping down of Steven Maijoor in March this year, after he served the maximum term as chair of ESMA.

“[Cazenave] brings with her a wealth of experience from the public and private sectors, which will benefit ESMA as it enters its second decade. The members of the management board and the board of supervisors are looking forward to working with Natasha in implementing its ambitious Work Programme and preparing for future challenges and responsibilities,” said Anneli Tuominen, interim chair at ESMA.

“On behalf of the board of supervisors, I would like to warmly thank Verena Ross for her role over the past 10 years in making ESMA the successful EU authority it is today.”

The post ESMA appoints new executive director from AMF appeared first on The TRADE.

While the Autorité des Marchés Financiers (AMF) did not explicitly name the ELP SIs in its research and the analysis is based on activity in French stocks, by cross-referencing the analysis with other European market share data, such as TABB Group’s research earlier this year, The TRADE has uncovered which ELP SIs were analysed, and where they stand in terms of market share in French equities. 

The findings reveal that XTX Markets was recognised as the largest ELP SI in French equities, with a market share of 13% by the end of the first quarter. XTX Markets confirmed The TRADE’s findings on the AMF SI report, which also showed that the market maker provided the lowest market impact and highest price improvement during the period.

The method shows that Citadel Securities held the second largest ELP SI market share in French equities at roughly 9% during the period, followed by Tower Research Capital Europe at just over 8%. Elsewhere, Hudson River Trading held just over 4% of the market share, while Jane Street and Virtu Financial held roughly 1% each.

First introduced under MiFID, the number of SIs operated by banks surged under MiFID II when it was introduced in January 2018. SIs replaced broker crossing networks, which were banned, and the landscape saw the emergence of SIs operated by liquidity providers, known as ELP SIs.

As the number of SIs in operation grew, the buy-side raised concerns about a lack of transparency and understanding as to how the venues function. A poll from the TradeTech Europe conference in April last year found that 56% of delegates were unsure about how ELP SIs differ from each other.

The AMF’s research shines a light on some of these issues, providing in-depth statistics on each venue’s metrics such as market impact and price improvement. The analysis is more detailed than other studies into the SI trading landscape, likely because it encompasses data that only the regulator has access to.

In the first quarter this year, the study found that SIs operated by banks accounted for 76% of the French SI market, while ELP SIs accounted for 24%. Each ELP SI was numbered in the report from one to six according to their ranking in market share.

The AMF noted that the study revealed a wide variety of profiles for the venues, depending on the participants. For example, ELP SIs differ greatly from bank SIs in terms of market impact and price reversion. As ELP SIs primarily execute small transactions, price reversion can usually be seen in the few minutes after a transaction, while bank SIs typically execute larger sized orders over €200,000, so price reversion is usually seen up to 30 minutes after a trade. The analysis by the AMF revealed how each ELP SI performed in terms of market impact. 

ELP_1 and ELP_4, now identified by The TRADE as XTX Markets and Hudson River Trading respectively, had practically no market impact as no movement in Euronext prices was observed once a transaction is completed. This was particularly noticeable when trading with XTX Markets, according to the AMF.

“This price trend is particularly favourable after the transactions made on ELP_1 and seems to show the ability of some SIs to hold the positions originating from their client, or at least to manage and possibly hedge them without causing a price impact that could jeopardise the continuation of their client’s executions,” the AMF said. “Under these conditions, these execution venues prove to be attractive sources of liquidity for their clients.”

Hudson River Trading did not respond to requests for comment from The TRADE.

ELP_2, identified by The TRADE as Citadel Securities, was also recognised as being especially strong on market impact and “particularly competitive” when prices are moving. The AMF noted that a “slight impact is observed, which starts to diminish two minutes after the initial transaction”.

“We appreciate AMF’s observations around the value that ELP SIs contribute to the market and would welcome further analysis that highlights how investors directly benefit from the quality of liquidity and price improvement that they provide,” Jonathan Finney, global head of equity development at Citadel Securities, told The TRADE about the findings.

ELP_3, ELP_5, and ELP_6, identified by The TRADE as Tower Research, Jane Street and Virtu Financial respectively, were not highlighted as being strong on market impact according to the research, which the AMF indicated could mean that they do not hold their positions for very long and offset quickly on other venues.

Jane Street and Virtu Financial declined to comment on the findings.

“ELP_3, ELP_5 and ELP_6 seem to be the participants (among the SIs represented here) that are associated with the sharpest drop in prices following the sale of clients via an SI,” the research stated. “This decline could be caused by these SIs, suggesting that these participants do not keep the position they have acquired vis-à-vis the client for long and quickly unwind it in the market, passing the impact on to the market that the client might have had if it had dealt directly with it.”

The AMF added it cannot rule out that the market impact and price trend could be related to clients and market participants rather than the ELP SI. However, the regulator warned that if the trend continues over time, some ELP SIs may have to “revise its strategy (in particular vis-à-vis its most unprofitable clients), or risk jeopardising the profitability and sustainability of its business”.

On price improvement, the AMF found that SIs generally perform well against other venues and of the amounts executed on SIs during the first quarter, 54% is executed at the same price as on the Euronext French order book, while the remaining 46% is executed at an improved price.

ELP SIs offer more price improvement than bank SIs, the regulator noted, although price-improving flow generally represents 50% of volumes processed at bank SIs, compared to between 17% and 60% of volumes processed at ELP SIs. However, bank SIs execute their remaining volume outside of the market spread, while ELP SIs execute the rest at the same prices as those displayed on Euronext.

The data from the AMF showed that ELP_1, identified as XTX Markets, had the largest proportion of price improvement flow during the first quarter at more than 60%, followed by ELP_5, identified as Jane Street, with almost 40% of flow executed at an improved price over the period. Citadel Securities’ price improvement flow stood at around 32%, while Tower Research had just over 20%.

“This is the first independent, authoritative analysis into SI liquidity providers based on actual data,” Jigar Patel, global head of business development at XTX Markets, told The TRADE regarding the AMF’s research. “As a regulator, the AMF has unique access to non-anonymised SI data and exchange market data, which demonstrates the key differences between SIs. As ELP_1, XTX Markets is pleased to have been shown to have the lowest market impact and best price improvement within the report, demonstrating the quality of our liquidity provisioning.”

While this analysis serves to place ELP SIs ahead of the pack in terms of price improvement, incoming rules under MiFID II on tick sizes could have a far-reaching impact on SIs and their ability to improve prices for clients.

SIs will be subject to the tick size regime in June following a delay to enforcement due to disruption caused by the coronavirus pandemic. Exchange operators and other venues have long-argued that SIs have an unfair advantage over lit venues not being subject to the tick size regime, because they have greater capacity for price improvement. They argued that this could divert routing of client orders towards SIs rather than on-exchange venues, a principal aim of Europe’s MiFID II.

Once SIs fall under the tick size regime on 26 June, the AMF warned price improvement on SIs could dampen. It calculated that nearly 40% of total volumes currently traded on SIs are at a price that will not be allowed under the rules. During the first quarter, the AMF found that 43% of improved prices were lower than a tick and in breach of the upcoming requirements. The regulator warned that some ELP SIs may have to rethink their business as a result, including ELP_3, identified by The TRADE as Tower Research.

“For Q1 2020, 57% of ‘improved prices’ were not compliant with the tick size regime (and more generally, 36% of volumes traded in the continuous trading phase). In particular, the third largest ELP SI (in terms of market share), whose price improvement is mostly concentrated around one tenth of a tick should revise its client offering,” the study stated.

Simon Dove, liquidity management and managing director at Tower Research Capital Europe, told The TRADE: “We welcome the AMF’s in-depth analysis and in particular their efforts to identify SI volumes that represent genuine accessible liquidity rather than technical trades. We believe this report supports our view that SIs compliment other execution venues and provides end investors with a choice to meet their particular liquidity needs.”

Almost one year after ELP SIs were introduced under MiFID II, Matt McLoughlin, head of trading at Liontrust Asset Management, told The TRADE as part of a debate on ELP SIs with Citadel Securities and investment bank Jefferies, that price has become less important for the buy-side compared to other metrics, such as market impact and size.

“For the buy-side, I think market impact and size has become a lot more important,” he said. “I’m not looking for a twentieth of a tick price improvement, I’d rather have larger size and lower market impact. It’s strange to say it as a trader who is addicted to getting the best price – but the best price is not always best execution for me.”

Senior buy-side traders recently backed SIs in an ongoing review of MiFID II, which suggested the removal of SIs as an execution venue under the share trading obligation. BlackRock said in its response to the proposal that it is essential to safeguard SIs as they play a crucial role of providing principal liquidity for large trade sizes.

ELP SI operators have looked to educate the industry on the differences and nuances between each of the venues, as some focus on market impact or size, while others focus on providing unique pools of liquidity. Some market participants have argued that scrutiny and criticism of the SI regime has allowed market makers to provide more transparency around how the mechanisms operate.

The post Analysis of AMF data reveals largest ELP SI market shares in France appeared first on The TRADE.

The Autorité des Marchés Financiers (AMF) analysed the role of SIs in French equities in terms of weight on market structure, and contribution to pre-trade transparency, price discovery, and price improvement, when compared to exchange Euronext.

According to the study, transactions subject to pre-trade transparency requirements represent just 22% of the amounts traded by SIs during the continuous trading phase, or just 1.4% of the total amounts traded on the market during the period. The AMF described the contribution of SIs to transparency on buying and selling interests in the market as therefore ‘very limited’.

The AMF also observed that a significant 40% of volumes currently on SIs are traded at a price that will not be possible under the tick size regime. SIs will become subject to the tick size regime in June after a delay to enforcement due to disruption caused by the coronavirus pandemic. The move could dampen price improvement for SIs, the AMF warned, as 43% of improved prices in the first quarter this year were less than one tick and so were not compliant with the regime.

There was a total of 36 active SIs on the French equity market in the first quarter this year, consisting of 28 bank SIs and eight electronic liquidity provider (ELP) SIs. Bank SIs accounted for around 76% of volumes and ELP SIs account for around 24%. The AMF valued the market share of SIs at between 15% and 20% of the total amounts traded in shares, which it said is ‘higher than expected’.

An SI deals on its own account by executing client orders outside of a regulated market, multilateral trading facility (MTF) or organised trading facility (OTF) under MiFID and MiFID II. The regime requires firms to assess whether they are SIs for various assets on a quarterly basis, based on data from the prior six months of activity. If firms exceed thresholds from the calculations, they are considered an SI under MiFID II and have to fulfil SI obligations.

While a limited number SIs were already in operation under MiFID, banks and market makers operating SIs once MiFID II came into force surged. The recent review of MiFID II in Europe has also targeted SIs, with the European Securities and Markets Authority outright asking market participants if they should be removed under the share trading obligation.

Asset managers and heads of trading largely rejected the bid to ban SIs as part of the review, instead highlighting to authorities that SIs are critically important to European markets.

“We strongly oppose the removal of SIs as eligible execution venues for the purpose of the share trading obligation,” BlackRock said about the issue. “Systematic Internalisers play a crucial role of providing principal liquidity for large trade sizes. This is vital for investors both in calm and in disrupted markets. For that reason, it is essential to safeguard SIs.

“We understand that there is concern around the role that SIs play in the market ecosystem and questions around transparency. These are best addressed by strengthening the SI’s ability to provide meaningful principal liquidity.”

The post French regulator says SIs contribution to transparency is very limited appeared first on The TRADE.

The European Securities and Markets Authority (ESMA) confirmed that Austria, Belgium, France, Greece and Spain will not renew the bans on short selling, which expire on 18 May, and Italy will lift its own restrictions early, before they are due to expire on 18 June.

“Since the implementation of the ban, the Authority has observed a progressive normalisation,” said France’s Autorité des Marchés Financiers (AMF) in a statement. “Markets have partly reduced their losses, trading volumes and volatility have returned to levels that are still high compared to mid-February, however this reflects market participants’ uncertainties in the current context.”

Multiple European financial authorities moved to temporarily curb short selling in March as the pandemic gripped markets, despite concerns from exchange groups and investment firms that the bans would in fact be detrimental and disruptive to markets.

Just last week, a group of trade associations representing Europe’s hedge funds and principal trading firms, including AIMA and FIA EPTA, urged the restrictions be lifted as they have failed to curb volatility, damaged markets and undermined investors.

“Banning short selling significantly degrades market liquidity and price formation while increasing trading costs and volatility,” the groups said in a letter to France’s AMF. “Over the longer term, the bans risk undermining confidence in key European financial markets and hampering the goal of the Capital Markets Union (CMU), something that will be vital to European recovery from the profound economic shock caused by COVID-19.”

As the short selling bans in Europe were imposed in March, ESMA also demanded more information from hedge funds betting against stocks, by lowering the threshold at which investors must report to national regulators on short selling positions. The authority said this measure remains in place until 16 June, and can be renewed if necessary.

Short selling is a bet that the price of a stock will fall, and is considered a risky but lucrative trading strategy mostly applied by hedge funds. Short sellers borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them to the lender, pocketing the margin.

In 2008 during the global financial crisis, regulators globally made similar moves to ban short selling of stocks, due to fears the trading strategy would exacerbate the steep drop in stock prices.

The post Short selling bans lifted in Europe appeared first on The TRADE.

The proposal would do “very little” to fix the unit economics for sell-side brokerages, argues Mark Pacitti, founder and managing director at primary research specialist, Woozle Research, based in London. Neither will it make markets more liquid for the buy-side, he warns.

“The inherent conflict of interest that exists when owners pay for their own scorecards isn’t palatable to most investors and is in fact encouraging a corrupt framework that existed with credit rating agencies before 2008,” Pacitti says. 

The report from the AMF in January said the fact that the pooling of revenues generated by execution and research is no longer authorised has led to a deterioration in coverage of small and medium-sized companies. This is detrimental to a healthy competitive environment, the AMF states. It also proposed using the expression: “research paid for by the company” on the research note.

The European Commission is preparing to revise some MiFID II rules this year, with a consultation published recently, outlining the possible changes. The AMF argues that that the European framework could be modified to introduce a form of adequation between the cost and price of research.

It calls for the creation of a virtual “research marketplace”, in which investment service providers and research firms would exchange financial research with investors, who would volunteer to share its cost.

Declining levels of coverage for large stocks have no obvious impact on liquidity, but price discovery is hindered if the number of analysts on a small-cap drops from one or two to zero. Pacitti points to the fact that there are already at least 15 research aggregator platforms operating in Europe today, not including the largest market data vendors such as Bloomberg, Refinitiv, FactSet and S&P Global.

“The idea that a research marketplace would somehow stem the flow of commission dollars towards the bulge bracket research houses is as fanciful as it is impractical,” he argues.

Devil you know

The intention of MiFID II to improve transparency and protection for investors in the wake of the 2008 financial crisis has fallen victim to unintended consequences. The results, according to Pacitti, are “less research, less liquidity, and less efficient markets resulting in worse returns for investors,” even when considering asset manager fee compression and reduced research budgets for the buy side.

Woozle conducted interviews with 45 independent research boutiques in Europe and the vast majority reported that they were somewhat or significantly disappointed with the levels of commission generated by the research marketplaces to which they contribute. Woozle found that 30% of research providers are earning no revenues on those systems, and approximately half of the total commission dollars being spent by buy-side investment firms is being split between the top 20% of sell-side vendors.

Pacitti’s Woozle Research firm takes its name from the “Woozle effect” in academia, where a research conclusion is cited as evidence by other researchers, regardless of whether the conclusion was correct in the first place. He draws a parallel with the 1933 Glass-Steagall Act in the US, which separated investment and commercial banking in the wake of the Wall Street Crash of 1929.

The unintended consequences of restricting US banks to only sourcing a maximum of 10% of income from investment securities has increased risk as institutions weren’t able to diversify exposure. The Glass-Steagall Act was eventually repealed in 1999 and Pacitti adds that in the long-term, industry regulations will be “cyclical not structural. There’s a good probability that the adverse consequences of MiFID II will be repealed or will see significant changes”.

In the meantime, the buy-side may prefer to stick with the devil it knows. Introducing adequation between the price and cost of research would change research providers’ business models once again and add a new regulatory burden on asset managers, argues Patrick Simion, head of public affairs at BNP Paribas Asset Management in Paris: “We have become used to MiFID II rules and we don’t feel that additional rules will help.”

That view is echoed by Charlotte Decuyper, market structure and strategy analyst at Liquidnet in London. When MiFID II came into force, the challenge for most asset managers was being able to collate data to accurately assess and evaluate their consumption and the quality of research. The result is that asset managers, also facing the growth of passive investing, are now seeking to only consume research where they see clear value-added in the investment process.

“Based on the new data, the objective is to select the best in class type of research,” Decuyper says. Asset managers have also started favouring new types of access such as discussions with a veteran analyst: “The industry has been adjusting to the new rules over the last two years and processes are just starting to bed down.”

Simion at BNP Paribas adds that the industry has seen a “significant decrease” in research budgets, achieved by closer monitoring of research consumption and internalisation. BNP Paribas Asset Management is maintaining “high levels” of budget for small and mid-cap research, while also relying on internal analytical capacity, according to Simion. 

Small and mid-cap research

The assumption that small- and mid-cap coverage has suffered as result of MiFID II is open to debate. A trend of worsening coverage of small- and mid-caps was already clear prior to MiFID II, Decuyper argues.

However, Hardman & Co found that in the UK in 2018, the worst impact was in fact felt by large-caps, with average analysts for each London Stock Exchange large-cap stock falling 7.4% during the year. At the same time, mid-cap coverage fell 3.1%, and coverage of main market small-caps and AIM companies actually increased by 15.6% and 7.9%, respectively.

This was backed up by the UK’s Financial Conduct Authority (FCA), which found in September that, despite research budgets falling on average by 20%-30% since the introduction of MiFID II, most asset managers agreed that they are still getting the research they need. There was no sign of a material reduction in coverage of small- and mid-caps in the UK, the FCA found.

Yet, the AMAFI association of French market professionals reported in September a “large consensus among issuers, asset management companies and research providers” that the total amount paid for research has dramatically diminished and is set to continue to fall, with the decline particularly severe for small- and mid-caps.

This suggests the supply of research is driven by the overall attractiveness of a stock exchange for smaller companies, rather than simply by regulation. The UK has by far the largest weight in the MSCI Europe Small Cap Index at 32%. Sweden and Germany, both on 11%, are the next largest constituents.

Under the previous bundled model, Decuyper explains there was an assumption that there was greater incentive for bulge brackets to cover large-cap stocks and get paid with large cap flow. Under the current system, becoming an expert in a small-cap company “enables the provider of research services to remain relevant to clients, rather than being yet another junior analyst in a large-cap where you are unlikely to be paid commensurably for your work,” she says.

Ways forward

The aim of MiFID II to promote innovative ways to produce, price and distribute research at a more realistic price point has not yet been realised as the bulge bracket still dominates research spending, Decuyper says, outlining that the status quo is “increasingly unsustainable”.

Rather than the focus being on returning to the research provision of the past, Decuyper concludes that the industry needs to adapt and evolve to what is required going forward. One way forward, she suggests, would be to provide the competition regulator in each jurisdiction with a mandate to investigate whether research prices are so low that they might be considered a form of inducement.

There is also a need to regulate new sectors of research including alternative data and Environmental, Social and Governance (ESG) as well as new ways to improve distribution. In the UK, the FCA has said it will challenge firms it deems to be ‘greenwashing’ products. The AMF argues that there is a need for certification of ESG research analysts, but without providing details of how to do so.

Steven Maijoor, chair of the European Securities and Markets Authority, said in a speech in February that the level of public scrutiny and supervision of ESG ratings agencies is “far from optimal”, and public regulation is needed.

EU regulations continue in force in the UK during the Brexit implementation period which runs until December 31. After that, providers who can supply high quality ESG research are likely to have a bright future no matter which regulatory regime they operate under.

The post Reviving research in an unbundled world appeared first on The TRADE.

Market participants are now banned from creating or increasing all short net positions on shares admitted to trading on venues in France, the Autorité des Marchés Financiers (AMF) confirmed, extending a one-day ban that was imposed just yesterday by multiple regulators across Europe.  

The AMF stated that the decision was made “in the light of the outbreak of coronavirus and its consequences on the economy and financial market in France,” and “given that the current exceptional circumstances represent a serious threat to market confidence”.

France, Italy and the UK have made moves to curb short selling to combat the market sell-off, with one-day bans. Spain’s Comisión Nacional del Mercado de Valores decided to ban short selling activity on Spanish shares for up to one month from yesterday. The ban can be extended if needed, but may also be lifted before the one-month deadline.

The European Securities and Markets Authority (ESMA) has also demanded more information from hedge funds betting against stocks, by lowering the threshold at which investors must report to national regulators on short selling positions. ESMA said the move was made under “exceptional circumstances” linked to the ongoing coronavirus pandemic.

Short sellers borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them to the lender, pocketing the margin. In 2008 during the global financial crisis, regulators globally made similar moves to ban short selling of stocks, due to fears the trading strategy would exacerbate the steep drop in stock prices.

The post France extends short selling ban to one month appeared first on The TRADE.

Responding to recent and significant declines across Europe’s equities markets, authorities in Spain, Italy, France and the UK have all imposed bans on creating or increasing short positions on some securities.

The Autorité des Marchés Financiers in France, Financial Conduct Authority in the UK, and Italy’s Commissione Nazionale per le Società e la Borsa, have all taken action today to impose one-day bans on short selling of European stocks most impacted by the recent market declines.

Spain’s Comisión Nacional del Mercado de Valores has decided to ban short selling activity on Spanish shares for up to one month from today. The ban can be extended if needed, but may also be lifted before the one-month deadline.

Short selling, considered a risky but lucrative trading strategy mostly applied by hedge funds, is a bet that the price of a stock will fall. Short sellers borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them to the lender, pocketing the margin. In 2008 during the global financial crisis, regulators globally made similar moves to ban short selling of stocks, due to fears the trading strategy would exacerbate the steep drop in stock prices.

Earlier this week, the European Securities and Markets Authority (ESMA) demanded more information from hedge funds betting against stocks, by lowering the threshold at which investors must report to national regulators on short selling positions. ESMA said the move was made under “exceptional circumstances” linked to the ongoing coronavirus pandemic.

“The measure can support more stringent action if required to ensure the orderly functioning of EU markets, financial stability and investor protection,” ESMA added. “ESMA considers that the current circumstances constitute a serious threat to market confidence in the EU, and that the proposed measure is appropriate and proportionate to address the current threat level to EU financial markets.”

The post Short selling restricted across Europe due to coronavirus pandemic appeared first on The TRADE.

For the study, the AMF surveyed market participants across the buy- and sell-side and found that respondents almost unanimously agreed that MiFID II has had some form of negative effect on research, particularly in terms of the quality and reduction of coverage in small and mid-cap securities.

France’s regulator has been upfront about its concerns about MiFID II’s rules on research, even calling for European authorities to review the requirements. In contrast, the UK’s Financial Conduct Authority (FCA) said early last year that it is yet to see evidence of the negative impact of unbundling, despite concerns being raised by regulators across Europe.

“Since implementation, we have watched for changes in coverage of smaller companies. I think the evidence is, so far, inconclusive, and does not suggest the dramatically negative impact that some predicted,” former FCA chief, Andrew Bailey previously said about the issue. “Overall, we consider that the rules are already having a positive impact.”

The AMF has now countered in its study that fundamental differences in UK and French markets, specifically in terms of the UK’s “strong local corporate brokerage culture”, has preserved coverage of small- and mid-cap securities in the UK, while France and other countries in Europe have been more susceptible to the damaging impact of unbundling.

Other key issues with the reforms highlighted by the AMF include the ongoing unclear pricing of research in the market, lack of clarity on corporate access practices, and a ‘juniorisation’ of analysts.

The report was authored by the AMF’s task force, formed in July to explore concrete ways to mobilise the research marketplace and improve the deteriorating situation, led by Jacqueline Eli-Namer, an AMF Board member, and Thierry Giami, president of the French Society of Financial Analysts.

The task force has recommended various methods to revive the research market in France, including plans to introduce a research marketplace to increase supply, provide financial support for the production of research, simplify corporate access rules and loosen requirements around trial periods.

“The measures governing research funding introduced by MiFID II have severely undermined a number of participants. The segment of small- and mid-caps, which suffered previously from very scarce coverage, is in an even worse situation,” the AMF’s task force said in conclusion. “Strengthening the production of equity research seems a realistic objective. The forthcoming discussions on a review of MiFID II point to opportunities for adaptation.”

Earlier this month, multiple large trade associations in Europe called on policy makers to amend other aspects of MiFID II ahead of a review of the rules. The groups, led by the European Forum of Securities Associations, agreed that reporting on best execution, systematic internaliser regime, and increasing market data costs must be prioritised for the upcoming review. 

The European Securities and Markets Authority (ESMA) confirmed in November that it would take a staggered and focused approach to the upcoming review of MiFID II. Steven Maijoor, chair of ESMA, acknowledged MiFID II has achieved some of its goals, but recognised there are areas where improvements may need to be considered.

Maijoor added that over the next few months, the industry should expect several key consultations and review reports, specifically on the MiFID II transparency regime, including the double volume cap, derivatives trading obligation and SI regime.

The post France’s financial watchdog looks to revive declining research market under MiFID II appeared first on The TRADE.

The enforcement committee of the Autorité des Marchés Financiers (AMF) said that the fine against Morgan Stanley related to a ‘pump and dump’ scheme carried out in June 2015, whereby traders bought large quantities of bonds in a bid to drive prices up before selling.  

In a statement responding to the regulatory action seen by The TRADE, Morgan Stanley said that it will appeal the decision and denied any wrongdoing in its activities related to the French bond market, reiterating that it acted in the interest of clients.

“We are very disappointed with this finding and we fully intend to lodge an appeal. Morgan Stanley will continue to defend vigorously its integrity and high standards of professional behaviour,” Morgan Stanley’s statement read. “The activities in question were undertaken in accordance with market practice and as part of the Firm’s role and obligations as a market maker and Morgan Stanley remains confident that it has acted in the best interests of the market and its clients. We therefore look forward to presenting our case to the appeal court.”

According to the AMF, the European government bonds desk at Morgan Stanley in London aggressively purchased a high number of French sovereign bonds futures contracts and German sovereign bonds futures contracts on Eurex, but then sold some on the MTS France and BrokerTec trading platforms at an ‘artificial and abnormal’ price.  

The purchase of the French sovereign bonds futures was considered manipulation and a form of deception, as it was not consistent with the overall strategy of the European government bonds desk at Morgan Stanley, the AMF added, and the scheme distorted the view of the French sovereign bond market for various market participants.

The post Morgan Stanley to appeal €20 million fine for rigging bond market in France appeared first on The TRADE.