Rules and returns. This is the show where we delve into regulatory challenges and opportunities around the globe from mifid ii to doddfrank. Reacting to a new generation of rules. On the frontlines of this brave new regulatory world, today we speak to marcus faber, the lead lawmaker on mifid ii. First up on rules and returns, we are months away from the regulatory events that could upend Financial Markets. Mifid ii, or to give it its full name, the markets direct if, this is the European Unions second big push to regulate markets, set to rewrite the rules for how prices are set and brokers pay one another. It starts soon. Mifids first situation was in 2002. After the crisis policymakers decided more was needed. Mifid ii goes beyond equities to bonds and beyond. The new regulations will force much of broker to brokerdeals onto regulated platforms. With this making up half of all trades, algorithms must be registered with regulators. They will be tested and include Circuit Breakers to shut them down. It is not just the machines under scrutiny. Research provided by analysts, banks and paid for by commissions will have to be paid for separately. What happened in europe doesnt stay there. The regulators will extend to any institution trading european securities no matter where they are. None of this comes cheap. It is estimated to cost over 800 million to implement the systems to be compliant. The clock is ticking toward mifid iis january 3 deadline. Ecb president mario draghi warned last week at jackson hole that it was dangerous to loop the regulation. With mifid ii regulation coming into force in january but with research into highfrequency trading there are still a lot of questions ahead of the deadline. Joining us now with some of the answers is marcus faber, great to have you on the program. You have been instrumental in the creation of mifid ii. Does the regulation as it stands now go far enough and its aims of achieving transparency and protecting investors . I think we did what was possible, to translate, in pittsburgh, the g20 leaders agreed, no unrelated market or product. Mifid ii was the end to fulfill this and i think we have achieved a lot to fulfill this criterion. Nejra a lot has been achieved but we are four months away and changes are still being made to the legislation. There was an attempt to close the loophole around internalizing. What do regulators need to do now in terms of ira ties in amendments to mifid ii . Nothing can be changed anymore, if we want to avoid the january 2018 as the day of entry to force, it will be safeguarded. Only some things can be done on the regulatory standards. We are trying to understand, legislators, and supervisory agencies, National Authorities like spa in the United Kingdom or in germany, what is going to happen in the market. One thing we invented, broker crossing at networks have not be, not an otf, they are now going to be developed on si. That gives advantages and that is why we are trying to close these loopholes. We are going to identify in the transformation process and i appreciate the good cop or the good cooperation from the direct contact every week with the responsible commission to fix all these we are trying to identify. Nejra you think esma has gone far enough in closing the loophole . The commissioner is now preparing that, that is the normal procedure. Nejra i want to ask you about unconventional Monetary Policy. Mario draghi at jackson hole was saying we should be wary of deregulation when Monetary Policy is so expansionary. Mifid came about as a result from the financial crisis, how does mifid ii take into account of unconventional Monetary Policy on the markets . That is not the challenge of the mifid, the challenges, to bring as much as possible trade to a Regulatory Framework so that there are no unregulated markets. The question of liquidity markets, which is different, i will discuss that with stephen, we have difficult is we have difficulties but liquidity is not the problem itself. Liquidity goes to unregulated markets and that is what we want to avoid. Nejra one big issue as well is investment research. This issue of unbundling Research Costs from trading commissions. We had all sorts of quotes the reported on, some as low as a view thousand euros for research. Is there a point which research become so cheap it is an inducement and do you think regulators should be looking into this . I think what we have done is to make transparency in this area. With this closure ruling, we have established, we are fulfilling these criterions. It can be the case that the new inducements, especially in Member States who have a ban of inducement like the netherlands, United Kingdom, will introduce high Research Costs as a new kind of reimbursement for the bank and that is something we want to avoid. Transparency is always a good solution to avoid misselling, this creation of costs that is going to happen. I think we found the right answer and i appreciate u. K. Authorities on the sector which gave us a lot of figures. What is happening in the sector. I think transparency and clear Disclosure Rules are a good solution for the problem. Nejra a quick question. Are you concerned about conflicts arising in the implementation of mifid ii regulation in different eu Member States . I dont see that. We have already postponed the date of coming into force for one year so everyone knew for a long time, we have agreed in 2014 about what has to be done. It was enough time to implement the systems and there is no blaming that there wasnt enough time, so the blame goes back to them. Nejra mifid ii the lead lawmaker on in the european parliament, thank you for joining us. Next we are back in brussels. We will talk about mifid ii and transparency. That conversation next. This is bloomberg. Nejra welcome back to Bloomberg Markets, rules and returns. Lets get a roundup of the latest news on Financial Regulation. In jackson hole the worlds most powerful central bankers delivered warnings against dismantling tough post crisis financial rules. The Trump Administration blames for stifled at u. S. Growth. Mario draghi said it was a particular dangerous time. Echoing similar remarks by janet yellen who urged any rollback of post crisis rules to be modest. Banks are trying to figure out whether retail banks need to charge for meetings with clients. A lack of clarity over new market rules. The danish bank plans to offer Credit Research for free while charging for special requests. Europes main bank lobby, because u. S. Commitment to a framework has become shaky. That is your regulation news roundup. Nejra thank you, sebastian. One of the main aims of mifid ii is to improve trading transparency and another problem is how to prevent firms from using loopholes to circumvent legislation. One loophole talks about internalizers. This allows banks and alternative way to keep trading in the dark. The issue was highlighted by the European Security authority to the European Commission earlier this year. The eu executive arm has since adopted an amendment to crack down on the practice. Joining us now is the chairman of the european markets authority, steven maijoor. Great to have you on the program. As you heard, this latest amendment about closing a loophole, we understand that. As the regulation of alls are you anticipating any more loopholes that you need to get around. Regulators create ruled and people try to get around them regulators create rules and people try to get around them. Steven thank you, very much for inviting me on the show. What has been happening is there was a suggestion and a clear indication of a possible loophole in mifid ii and with the help of the parliament and the commission that was subsequently closed. When there are rules and regulations it applies consistently across the eu and when there is any indication that the rules are not applied correctly we try to correct that. Nejra are you anticipating any other loopholes that people might find and try to act upon that you are anticipating and finding a solution to now . Steven as you are aware, mifid ii is a broad piece of legislation. There are many implementation issues around it. Our role as a regulator is to monitor that implementation. We get questions from regulators, Market Participants about that. Subsequently it is about us acting and sometimes we can solve it with a simple q a, some cases it could be a guideline and in some cases it could be legislators. Nejra some people argue that past financial crises, what triggered them, what the catalyst was was some kind of new financial contraction. Whether portfolio insurance in the 1980s, cdos in 2007, it always seems like these came about as a surprise even though they were around for quite a wild. Quite a while. What new financial contraction concerns you the most this time around in the markets . Is it etfs, cryptocurrencies, centralbank policy . Steven one of the lessons we have learned from the financial crisis and it is also reflected in how esma works and how we are structured, is that financial innovation can be a good thing for markets but in some cases, financial innovations can go wrong and create financial losses and problems in markets. We have seen it with securitizations, derivatives, and financial Regulatory Reform is an answer to that but more structurally, as an authority, we are looking into things like crowdfunding. Like new innovations, is there sufficient transparency on these things . Our tools to react to these have improved. One area where there is a concrete link with mifid ii is that it clearly reacts to the increased use of High Frequency trading and Financial Markets. Nejra do you think its time for Central Banks globally or even just europe to start pulling back on unconventional Monetary Policy because of the impact it is having on Financial Markets . Steven as security regulators, i leave the job of Monetary Policy to the central banking community. What we have done systematically, as security regulators is point to the side effects of low Interest Rate environment and how the impact of evaluation of equities, loans, real estate, and it is clear in the current environment we have very regularly warned for that. The low Interest Rate environment creates risks in terms of over evaluation. Of very us Asset Classes in the security market. Nejra lets talk about transparency to unbundling research from trading commissions. I understand the logic behind this. But if research is for example paid for or generated by Asset Managers or hedge funds in house, isnt there more of a risk they might have access to information that others dont . Steven one of the prime reasons for separating research from execution is to get to a system where there is a deliberate concentration of value of research. And also the cost of this. The Current Situation where it is bundled and subsequently the client pays for the research, that clear consideration of the value of the research comparing to the cost of producing the research is a very good proposal or plan. Rule within mifid ii, we moved to the separation of research and execution and precisely with the intention to make sure that the decisionmaking on what kind of research is used in Asset Management is done more deliberately. Nejra in terms of the january 3 deadline, how hard will you come down on firms that dont manage to comply by that deadline . Steven as indicated by markus, this piece of legislation goes back to 2014. At that time the main text was agreed upon on the basis of suggestions. We have asked in the past for delays so the current deadline is already a year postponed. Equally, when we made that postponement earlier before 2017 it was clear that all Market Participants and regulators said, once we have the new deadline we need to stick. It results in a level playing field. It is very important we keep the deadline, and as indicated by the code legislators, it is a fixed deadline. Nejra thank you so much, steven maijoor. Steven thank you very much. Nejra up next on Bloomberg Markets, rules and returns, we hear what the big names in the market have been saying about how prepared they feel for the massive regulatory changes coming their way next year. This is bloomberg. Nejra welcome back to Bloomberg Markets, rules and returns. We caught up with bank of america ceo with an exclusive interview. One of the topics was the changing regulatory landscape and how prepared bank of america is for the challenges it will bring. There are important things. When what is important to you and the company . Rules that are going on that now have been pulled back. Then there are rules that have to be changed and then there is legislation. Across those, what the secretary did, with input from investors and analysts and companies and professors, here is a set of principles we have to fix. The key ones for us our capital. Liquidity requirements on technical rules. And allowing more access to you capital account when we have 20 billion excess after a stress test, let us go out and put that back into markets so someone else can use the cap because we dont need it to grow. Capital, liquidity and things would like that. The other people it might be something else. Trading oversight . Volckers too complex. You why everyone us admission. By everyones admission. The question is, can you make it a straightforward execution . That is probably a good idea because you have six agencies working on different sets of principles and they all know it is too complex. He is proposed, make it simpler. He has proposed, make it simpler. Now we have to figure out what we mean by that. We dont have proprietary trading, were not doing it. How many times do we have to disprove it . That is where it gets tricky. As you know, people are beginning to freak out about these new european rules known as mifid ii. How big a deal as it for bank of america . It costs us money to implement it and things like that but if you think about it, we have the number one Research Class in the world six years in a row. Im sure people will pay us for that. 80,000 a year . I assume they will because that is how they have to get it. With our customers and clients that do tens of millions of dollars of volume in the stuff, to me, it is not the Biggest Issue i have been worried about. Im worried about what is going on with the hurricane and other things. Of course. It will be fine. It is disruptive, im not sure we agree with all of it but it is the rules of the road, you put it in and you go on with life and you adjust. Nejra that is all we have time for for this episode of Bloomberg Markets rules and returns. If you are fascinated or frustrated by Financial Regulation or if you have questions and want to participate in the conversation, you can contact the team. Send us an email. This is bloomberg. Six or have million residents have been ordered to evacuate florida. A phone call meant to ease tensions lead to more accusations in saudi arabia and qatar. The u. S. Calls for a u. N. Security council vote to hit north korea with rough sanctions. I am tracy alloway, welcome to Bloomberg Markets middle east