The Practical Implications Of MiFID II
The MiFID Directive 2004/39 sets out a detailed framework regulating firms carrying on investment services and activities within the EEA and was transposed into Irish law by the European Communities (Markets in Financial Instruments) Regulations 2007. LDI is what such entities as defined-benefit pension funds in particular engage in. The investment strategy’s focus is not to make a fast return, but to ensure that enough money is made that all the investor’s liabilities may be met, both current and future. With pension funds, the emphasis is on future liabilities, so the longer investment horizons of private equity funds, for example, may be an option.
MiFID II is widely viewed as significant legislation which will fundamentally reshape European financial markets, the products and services that market participants provide and the relationship between market participants and their customers. It is therefore important to be aware of the presence of MiFID II and to appreciate the need to seek support proactively (both legal and operational) in order to ensure that, when MiFID II comes into force on the 3 January 2017, businesses are able to comply with its requirements.
Based on historical data, holding a broad portfolio of stocks over an extended period of time (for instance a large-cap portfolio like the S&P 500 over a 20-year period) significantly reduces your chances of losing your principal. However, the historical data should not mislead investors into thinking that there is no risk in investing in stocks over a long period of time.
Current MiFID II rules require that 180 days of call and communications data to be retained by financial institutions, but it will eventually specify that firms must meet a mandatory requirement of five years of date recordings. Cloud9 gives firms the ability to define their own retention periods, and to download their own recordings. Compared to the difficult reconstruction of discussions using turrets, with Cloud9 compliance officers can easily identify which participants were involved with each trade.
Many investment funds available through ISAs and pensions have overseas currency exposure. In some cases, a lot of a gain or loss can be due to the currency exchange rate, rather than the return of the underlying shares or other assets. So it’s worth making sure you know how much you have invested overseas and whether or not you’ll be exposed to currency movements.