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Wednesday, 15 January 2014

What the heck is MiFID?

I picked up the story in Kleinezeitung - the EU has passed a law to stop speculators artificially raising food prices - and didn't understand exactly what it meant. So I looked up the story in the Wall Street Journal - and am really none the wiser. Yes, I know what derivatives are, and what high frequency trading is, but 'dark markets' are a new one, and exactly what will be the effect on UK competitiveness of the measures is beyond my understanding. 

That this isn't a story featured in the UK press doesn't mean it's not important. But once again I must wait for Dr North or C@W or Tim Worstall or Booker to let me know if we should be concerned about this or not. Hey ho.


Jock Coats said...

I think they likely mean "Over the Counter" trades. There's been a common theme since 2008 that one problem is that these deals, conducted purely between principals with no reporting to or settlement via a market institution is distorting both price and liquidity and, crucially, do not benefit from centralised settlement systems so if one of the counter parties were, say, Lehman Bros, and was facing its own meltdown there's no settlement authority in between that would protect other market players if a major trade went sour.

Sackerson said...

Yes, food speculation is the new Wild West and you should be concerned, perhaps more for others than ourselves though. The price of corn in Mexico tripled not long ago because of speculation and the corn-ethanol eco-craze, which meant that Mexicans were finding it hard to afford their staple food.

WitteringsfromWitney said...

Markets in Financial Instruments Directive 2004/39/EC


Nick Drew said...

MiFiD and various related euro-diktats hover on the edge of being dangerous, but aren't (or at least not yet)

the point of departure is this:

the euro-wallahs (a) don't understand markets; (b) hate and fear markets; [additionally (c) there is, particularly in Germany/Austria but also France, a nasty strand of bile towards 'New York financiers', and we all know what that's code for]

over the years they have specifically developed a hatred / fear of thinly-regulated OTC ('over-the-counter', or bilateral) trade, in which two parties hatch the deal they want, on the terms they want, with no reference to an Exchange or to prescribed contractual forms.

So they are forever trying to force all trade onto Exchanges, which of course are very easy to regulate the hell out of

to me, and I imagine to you, the freedom to conduct OTC trade is a pretty basic commercial freedom, to be defended strenuously for several reasons. Note that the City is fundamentally based on OTC trade (notwithstanding some Exchange-based activity here), to a greater extent even than Wall Street / Chicago. It's one of the many reasons the City rules supreme in world trade

to cut a long story short, the eu-wallahs are always sniping around the edges of OTC trade, but London's interests are so great (and the e-w's understanding of things is so weak), we have always managed to fight them off

BTW, I was very worried around 2008-09 that they would use the pretext of the 'crisis caused by Anglo-Saxon finance' to cut some draconian new laws, but the opportunity passed them by

but they never go away, so Eternal Vigilance is always the watchword

finally (and parochially for me), the treatment of energy trading under MiFiD and its predecessor the ISD (Investment Services Directive) is quirky: the view has long prevailed (in the US and the UK as well) that there are no widows and orphans in energy trading, only Big Boys who can take care of themselves - so there has long been a 'light touch' regime in that sector. There are several eu-steps being taken (things called REMIT and EMIR) attempting to align energy trading more with general commodity trading regs, and indeed all financial trading regs

some of these measures are justified: even free-market zealots like myself agree you can't have people indulging in energy index-fixing, any more than you can tolerate LIBOR fixing

(I for one would gaol the lot)

free markets depend on good regulation, which is not the same as no regulation, and financial anarchists who claim otherwise are as mad as the anti-marketeers

Anonymous said...

Any market that is created to increase the price of commodities for no good reason other than to line some speculators pockets should be banned.

Supply/demand is good enough.

John M said...

There is little actual difference between an OTC trade and a second hand car salesman selling cars to an individual, or indeed a farmer selling his goods out of his own farm shop.

If the EU want to shove everything through governed exchanges then by implication the same rules should force us all to buy secondhand cars from the Government or all food from supermarkets.

Jock Coats said...

...except (the argument goes, I'm not saying I support it) the used car salesman or farmer do not pose the thing they really fear in the financial regulation circus, systemic risk to some of the biggest institutions.