This report summarises the main results of a survey conducted by the European Capital Markets Institute (ECMI) during the period December 2009 - July 2010. The survey aims to investigate the actual implementation of the Markets in Financial Instruments Directive (MiFID), two years after it came into force. 

Overall, there are seven areas that can be highlighted:
1) business conduct rules; 2) data quality, consolidation and access; 3) pre- and post-trade transparency; 4) trade execution; 5) organisational requirements; 6) transaction reporting; 7) general views.

Business conduct rules
The results of the survey seem to confirm that overall this set of rules has been uniformly applied across Europe. However, some doubts remain on remuneration of compliance officer and best execution duties. Overall, the compensation and functions of compliance officer are not always entirely independent from the performance and the day-by- day activities of the company. It is unclear if this is the effect or the cause of the scarce influence of the compliance function over the commercial strategies of the operational one. Concerning best execution duties, from the responses it seems clear that firms applying best execution are de facto making sure they meet the minimum legal requirements (static view). There are only a few hesitant intentions to promote dynamic execution policies for clients, beyond the requirements set by MiFID. It would therefore seem crucial to assess the commercial grounds of specific decisions. For instance, limiting the choice of trading venues that clients can decide to execute their orders on.

Data quality, consolidation and access 
In relation to quality, responding institutions seem to agree that the quality of some trade data is quite low (e.g. OTC trades). In addition, lack of standardised data formats and flags, plus the widespread use of potentially harmful selling practices (e.g. bundling pre- and post-trade data), seem to have deteriorated data quality and increased the costs of data consolidation on a pan-European level. Accessing these data solutions is thus still costly and use by retail investors and funds is not common.

Pre- and post-trade transparency
Respondents have highlighted major issues in the standardisation of formats and flags of post-trade data and quotes (for formats), which are impeding the actual delivery of a commonly affordable and meaningful consolidated pre- and post-trade data solution. The quality of data, therefore, is generally judged to be poor for OTC trades. However, there is a general feeling that MiFID has extended the range of products under transparency obligations, in line with the objective of a pan-European market. Besides quality, adjustments may be needed for waivers of pre-trade transparency, as thresholds may no longer be compatible with the evolution of the market. Other issues concern the use of cross-selling strategies to increase overall revenues, for example, the practice of bundling pre- and post-trade data solutions or promoting different formats to create an artificial non-homogeneity of products in order to help market segmentation in the distribution phase.

Trade execution
There are conflicting views on the effects of MiFID on trade execution. Some respondents argued that MiFID increased the volume of trades on dark books and/or off order books. However, other entities replied that MiFID only made transparent something that was opaque and outside the legal regime before it became effective.

Organisational requirements
Conflict of interest procedures are widely and uniformly applied by market participants since many of them had already procedures in place that were in line with MiFID requirements. However, monitoring these policies may be costly for financial authorities, which usually apply different mechanisms of enforcement. This may affect the results of their action. Regarding compliance officers, all respondents have appointed one with the introduction of MiFID. However, compensation is not always independent from the economic performance of the firm and officers typically perform other functions and responsibilities within the firm. All relevant respondents have a system of record-keeping in place. Finally, not all IFs segregate assets with third parties or are ready to do so if the investor opposes the decision to deposit financial instruments with a specific counterparty.

Transaction reporting
Transaction reporting requirements have been fully applied and Ifs keep records of them according to MiFID rules. The majority of IFs publish their transaction report through an external service provider.

General views
Overall, respondents’ opinions on MiFID rules are positive, in particular for the more competitive environment that has promoted most of all reductions of trading fees and massive investment in technologies and infrastructure. This generated positive spillover effects on the market as whole. Negative views are widespread on the actual quality of trading data, with particular reference to the OTC trades, and the costs that market participants have had to meet to fully implement MiFID rules.

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