Asia Traders Overwhelmed by New European Rules as Deadline Looms

12/06/2017 09:57 AST

Asian institutions have been overwhelmed by the breadth and scope of sweeping changes to Europe’s financial rules due in January, according to an industry group.

The law, known as MiFID II, threatens to upend everything from trading to research distribution, jolting firms in the region that are already burdened by a recent focus on other cross-border rules, said Keith Noyes, Asia Pacific director at the International Swaps and Derivatives Association.

Their reaction? “Wow,” said Noyes, who said some of the Asian members among the ISDA’s 850 firms from 69 countries only recently learned details about the rules for the first time. “They had no idea there was something this complicated coming down the pipe imminently,” he said.

One example of how the rules will affect operations, Noyes said at a media briefing Friday, is a requirement that firms wanting to trade with an EU-based counterparty will need a code, known as a legal entity identifier. A reporting rule that will need synchronization with European central time has meant Hong Kong landlords are being asked to position rooftop satellites to get timing accuracy down to the second, Noyes said an ISDA member recently told him.

With hopes of a delay dashed this week, firms in Asia are hiring lawyers and consultants to help with MiFID compliance in a seven-month time crunch, said Kishore Ramakrishnan, a director in financial services consulting at PricewaterhouseCoopers LLP in Hong Kong.

“The industry is unprepared,” Ramakrishnan said by phone. “There are a number of unresolved issues especially around the trade reporting and transparency requirements.”

Another issue is regulatory equivalence, negotiated between national regulators and ESMA.

Among pitfalls to not being equivalent, a trader at an EU-based firm would be unable to buy the Hong Kong listing of a dual-listed stock such as Standard Chartered Plc if the former British colony fails to gain equivalence status before the deadline.

PwC clients have established anywhere between 18 to 25 teams each with individuals from front office, risk, operations, legal and technology functions to deal with each obligation under MiFID II, said Ramakrishnan.

“Asian firms have a short time and will accelerate efforts - they can no longer wait and watch,” he said.

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