Adapting to the changing regulatory landscape, it has been important for our firm to isolate the key deliverables for the front office trading staff. At the same time it has been critical to ensure a strong collaboration between the portfolio managers and the trading desk. For our clients it is imperative that Nordea optimises the output from our people in actively managing our investment portfolio and getting in and out of positions with minimal market impact.
As the key knowledge of the front office functions sits within the trading desk, it has been important to reduce and streamline the burden of compliance and regulatory operational activities to ensure the trading desk could continue its work unhindered. We have focused on leveraging our counterparty relationships, technologies and other parts of our organisation to achieve this.
Nordea has established an overarching MiFID II project steering group structure at group level. Under this, subproject groups have been formed, including a MiFID II project group in Nordea Asset Management.
While the MiFID II project has been managed by our project organisation at Nordea Asset Management, it has been key to successful interpretation and implementation to involve and engage the business functions, both operations, investments and trading, alongside compliance and legal. To ensure this was done in a non-disruptive way for daily operations, the business development team in Investment Operations was tasked with running working groups addressing the MiFID II themes with direct impact on these functions, namely around best execution and payment for research. The business development team in Investment Operations has been well positioned for this, as they work closely with the investment teams and trading on processes and strategy.
Organisational process changes to support the front office trading team with the regulatory requirements:
We have isolated the investment research contribution for each buy/sell order entirely to the portfolio managers. The processes of budgeting costs for research, reconciliation of charges and notification of research budget levels to counterparties as well as choice of research partners are entirely out of the hands of the trading desk. The trading desk is now only responsible for managing execution and the choice of execution partners. This has required a behavioural change where the portfolio managers have taken on the responsibility and process of setting and adhering to research budgets. In addition, it brings savings to our clients, as we have decided to internalise the cost of research across all asset classes. We believe that scrutinising the use of research under the new MiFID II regime will over time bring further cost improvements.
Transaction reporting is entirely managed and processed internally and under the supervision of the newly established regulatory reporting team in our back office operations.
We will at least initially rely on our counterparty relationships for trade reporting (internal and/or external partnerships) due to technical challenges with getting upgrades to our IT platform.
We have spent a great deal of time on ensuring that our trading set-up and partnerships allow us the required flexibility and options to meet both best execution and comply with the MiFID II reporting obligations. It is important to us that our counterparties can support us in fulfilling our regulatory obligations, either by being Systematic Internalisers or by offering assisted reporting. Alternatively, we will be able to meet them on our selected trading venues such as multilateral trading facilities.
Our existing trading technologies and processes were already good enough to comply with MiFID II, but are always in focus for continued improvement and development.
We have established a Best Execution Committee to enhance our internal governance of our trading activities.
We have established a new Trading and Investment Support team which takes on many of the old and new operational tasks coming out of trading-related processes in response to both MiFID II and our ongoing focus on being best in class.
While it has been important to keep trading functions close to the project in order to ensure successful implementation, we have managed with our approach to keep trading’s core activities as our first priority, even in the sprint up to MiFID II kicking off on 3rd January.
With the objective of maximising the output of our trading desk, we are continuously re-evaluating how the team can add further value to the investment process in the best interest of our clients.
Nordea Asset Management has always developed our best execution procedures, but preparing for MiFID II has resulted in a momentous change management project. With the execution desk in focus, it has required a bidirectional focus on delegating away regulatory administrative processes from the trading desk and optimising how the trading desk can maximise its value in the investment process. We feel confident that we have organised and managed this project in a manner that meets the regulators’ intent of more robust oversight. At the same time we have ensured that we act in the best interest of our clients.
Nordea Asset Management facts:
- The largest asset manager in the Nordics, growing European presence and business
- AuM of EUR 221bn as of end-Q3 2017 – growing from EUR 138bn in 2012 (CAGR of 10.4%)
- 710 FTEs, of which 160 investment specialists