There are many issues with Mifid II that have been trodden over time and again in the months and years leading up to its implementation, but with the regulation going live on 3 January (‘Happy Mifid Day’ as it became known in the office) it is time to sit back and brace for impact.
The 10% rule has been among one of the most contentious aspects of the EU directive, obligating firms to tell clients if the value of their portfolio falls by 10% on the very same day.
The European Securities and Market Association (ESMA) says firms can easily report the fall in value to clients in one day. As long as the valuation is conducted at 6am it says “this approach would give firms 11 hours in which to report to clients during working hours”.
It adds that “adopting one fixed valuation point for each day would also avoid multiple reports being triggered during volatile market periods”, so we can safely assume it has thought of some of the practical issues.
But aside from the practical implications of the reporting requirement, the rule threatens to push back on on-going attempts to prevent the much bigger problem of short-termism among retail investors.
Buy high, sell low
The rule may, in fact, result in more of the quick-selling that in theory could push markets down.
It is a fear raised by Andrew Merricks, investment director of Skerritts Wealth Management.
“What have we always been told about investing for growth? It’s for the medium to longer term, surely? Wasn’t there a bit of disquiet recently about the move towards short-termism that was being seen as a negative trait in modern investors?” he says.
“We’re often told that it is foolish to try to time markets and that the most common mistake that retail investors make is to buy high and sell low. This is precisely the likely outcome of the new directives.
“I’m all for transparency, but I’m at a total loss to see how this rule can benefit investors in the long run.”