MIFID II – Unintended Consequences

Much has been said about the difficulty of implementing and complying with the revised Markets in Financial Instruments Directive (MiFID II), and little of this bears repetition (see Opimas report MiFID II Spending and Solutions Landscape). Far less attention has been focused on how market participants will adapt their behaviour to these regulatory changes, and what market structure will look like after the implementation of MiFID II. This is an exercise which is in part speculative, but, in many cases, we have clear indications from investment firms on how they will adapt, and how European market micro-structure will be impacted. We consider some of these effects, many of which will counter regulators’ intentions for European markets. Indeed, in some cases, MiFID II will achieve the exact opposite of regulators’ desired outcome.