FINANCIERS usually regard new regulations as dull, annoying drudgery best left to lawyers or the compliance department. That is not an option with the second iteration of the Markets in Financial Instruments Directive (MiFID 2), a European Union law years in the making and entering into force on January 3rd 2018. The law introduces radical changes to trading in trillions of euros-worth of stocks, bonds and derivatives. But its sheer scope and complexity mean that an unprecedented number of issues and technicalities are still unresolved.

MiFID 1, in force since 2007, was aimed at shares, and spawned a proliferation of new trading venues ranging from electronic platforms to “dark pools” run by investment banks, breaking the oligopoly of dozy national stock exchanges. The new, more ambitious, law seeks to bring transparency to a far wider range of asset classes, notably bonds and derivatives.

The single reform that has probably received most attention is the requirement to “unbundle” research. The cost of the copious research notes produced by investment banks has usually been folded into brokerage fees and commissions. The new law requires brokers to charge for them separately. Asset managers must either pass the cost on to their clients or absorb it—which is what most, including giants such as BlackRock and Vanguard, have so far opted to do. This is a substantial change; most expect large banks to slim down their research departments, for example. But as Leo Arduini of Citigroup points out, the full effects will not become clear until several years from now.

Apparent much sooner will be changes to the structure of markets themselves. On share trading, MiFID 2 bars investment banks from directly lining up buyers and sellers in their dark pools, and caps the amount of “dark” trading. To execute share trades on its own account, a bank must register as a “systematic internaliser” (SI). High-frequency trading firms, which trade with their own capital, are set to benefit from the expanded SI status. This will enable them for the first time openly to ply for business from asset managers.

Even in the familiar business of share trading, implementation has thrown up problems. Financial institutions wrangled with the regulator, the European Securities and Markets Authority (ESMA), over the precise scope of an SI, which was finalised only in August. Unless ESMA declares foreign trading venues (including such global pillars as the New York Stock Exchange) “equivalent” to EU ones, European firms may be forced to trade American shares through less liquid European listings. EU regulators say they are negotiating with their American counterparts, but it is not certain a deal can be reached by January.

The effects of MiFID 2 on markets for derivatives and bonds will be greater still. They are still largely traded “over the counter” (ie, not on a centralised exchange) and hardly regulated at all. The law aims to make trading more open and accessible. Hence it will push more of it to electronic platforms and away from banks. For some of the most liquid derivative instruments, such as interest-rate swaps, trading on public venues will become compulsory.

The new law’s main tool, however, is price transparency. For those instruments ESMA deems liquid, prices must be published both in advance and immediately after completed transactions (known as “pre- and post-trade transparency”). Even for less liquid instruments, prices must be published with a delay. Separately, regulators will require full reporting of every trade to prevent market abuse. Asset managers will be required to have “best execution” policies to show that they are trading assets at the best possible prices.

No through route

Nathaniel Lalone of Katten Muchin Rosenman, a law firm, complains that regulators tend to think mainly of equity markets, which has unintended consequences in derivatives markets. To pick just one example, the rules exempt “smart routers” used in share trading from certain requirements, but not the sort of routers used to trade futures. So even the smallest Chicago-based proprietary-trading firm that deals in futures may be cut off from European futures markets if it fails to submit to full regulation in the EU. Also worrying are the incompatibilities between American and EU rules on investor protection, and the uncertainty about the extent to which commodity firms that use derivatives (like, say, a cocoa-butter producer) may need to be regulated as financial firms.

Another bugbear is the law’s requirement for reams of identifying information. The head of bond-trading at an American bank, who says MiFID 2 takes up 90% of his time, spends much of it urging non-European clients to obtain “legal-entity identifiers”, unique numbers that are needed for transaction reporting. A separate obligation for non-European firms to provide details of a trader, stretching even to date of birth and national-identity number, makes many queasy. In a letter to ESMA on September 11th, four large electronic bond-trading platforms and an industry body warned that without stronger guarantees of privacy, “a material proportion of trading volumes…would leave Europe altogether.”

Brexit throws up further complications. The threshold for deeming instruments “liquid” is based on trading volumes that include Britain. So Mr Lalone reckons that a “hard” Brexit might mean that most bonds and derivatives avoid the transparency requirements at the heart of the new law. Mr Arduini, for his part, doubts that “equivalence” discussions for trading venues in America or Asia can be entirely divorced from those for British ones.

This all amounts to far more than the wrinkles to be expected with any new law. The sheer complexity of MiFID 2 casts doubt on whether its main goal—to shed transparency on formerly opaque markets—can be fully realised. Liz Callaghan of the International Capital Market Association, an industry body, likens the new law to a car, where regulators and market participants have focused heavily on certain components: “But if the car doesn’t run, there’s no point in designing the best wheels or the most streamlined body.” No one knows yet what happens when the ignition key is turned on January 3rd. But most expect a bumpy ride.

Clarification (October 18th, 2017): This article has been amended to clarify that “legal-entity identifiers″ and the obligation to report personal information are separate aspects of MiFID 2.