Wall Street Has New MiFID Migraine, Now in Futures Market

For Wall Street banks, the ripple effects keep spreading from sweeping new European rules that govern how brokerage clients pay for investment research.

The latest complication is in the multi-trillion-dollar futures and derivatives markets, where traders speculate on everything from currencies to oil and metals. Banks that handle client orders have provided market analysis for free — a perk that comes along with the lucrative fees customers pay them to execute trades. 

But the coming European rules require brokers to charge separately for research as part of an effort to eliminate conflicts of interest and give fund managers more transparency into what they pay for specific services. For Wall Street, the big worry is that complying with those restrictions may force their brokers who facilitate futures transactions to register as commodity trading advisers — a label that brings unwanted regulatory burdens.

To address the concerns, the Futures Industry Association has been lobbying the U.S. Commodity Futures Trading Commission for assurances that firms can adhere to the European constraints without facing costly new requirements in their home market. FIA members include Wall Street’s largest banks, such as Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley.

Unwanted Regulation

“It’s simply extra costs for no particular reason,” said  Nathaniel Lalone, a London-based partner at Katten Muchin Rosenman law firm. “Nobody wants to be regulated more than they have to.”

The FIA confirmed it has requested relief from the CFTC. The CFTC didn’t respond to requests for comment.

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The behind-the-scenes campaign at the CFTC comes just weeks after financial firms got a more significant reprieve from the U.S. Securities and Exchange Commission. Last month, the SEC said if brokers sell research on stocks directly to clients in Europe, the regulator won’t require them to register as investment advisers, a tag that also brings stricter oversight.

The effort now directed at the CFTC shows that with less than two months until Europe’s revised Markets in Financial Instruments Directive, or MiFID II, takes effect, global banks are still scrambling to identify all the potential consequences. Firms have to comply in early January, and a key goal is limiting MiFID II’s impact on earnings and all their various business units.

‘Solely Incidental’