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  1. 1. MiFID: Red Alert or Red Herring?
  2. 2. MiFID: Red Alert or Red Herring? Pete Hudson, Linedata Services
  3. 3. Agenda <ul><li>8:35 MiFID: Past, Present and Future </li></ul><ul><li>Paul Westgate Linedata Services </li></ul><ul><li>The MiFID Challenge </li></ul><ul><li>Bob Fuller Dresdner Kleinwort Wassertein </li></ul><ul><li>Co-Chair of MiFID JWG-IT </li></ul><ul><li>9:00 Panel-led Discussion </li></ul><ul><li>Tom Phelps (Chair) Cutter Associates </li></ul><ul><li>Bob Fuller Dresdner Kleinwort Wassertein </li></ul><ul><li>Andrew Allwright Reuters </li></ul><ul><li>Simon Leighton-Porter VSAF Ltd </li></ul><ul><li>Co-Chair of MiFID JWG-Standard Protocols </li></ul><ul><li>10:00 Summary </li></ul><ul><li>Pete Hudson Linedata Services </li></ul><ul><li>10:15 Close </li></ul>
  4. 4. MiFID: Past, Present and Future Paul Westgate, Linedata Services
  5. 5. MiFID to date - 2004 <ul><li>Level 1 : </li></ul><ul><li>Apr MiFID adopted by Council of </li></ul><ul><li>Ministers </li></ul><ul><li>Level 2 : </li></ul><ul><li>Apr-Dec CESR consultation and </li></ul><ul><li>advice to the EC </li></ul>
  6. 6. MiFID to date - 2005 <ul><li>Jan-May CESR consultation and </li></ul><ul><li>advice to the EC </li></ul><ul><li>Level 2 text : </li></ul><ul><li>Mar-Jul EC implementing measures </li></ul><ul><li>working documents </li></ul><ul><li>Sep EC implementing measures </li></ul><ul><li>working documents </li></ul><ul><li>Apr Joint Working Group (JWG) </li></ul><ul><li>May JWG first meeting </li></ul><ul><li>Aug JWG White Paper (Standard </li></ul><ul><li>Protocols) </li></ul><ul><li>Oct MiFID Readiness Survey </li></ul><ul><li>Nov FSA “Planning for MiFID” paper </li></ul><ul><li>IMA “What MiFID Means for </li></ul><ul><li>Investment Managers” paper </li></ul><ul><li>MiFID Connect formed </li></ul><ul><li>Dec HM Treasury “MiFID Consultation </li></ul><ul><li>Paper” </li></ul><ul><li>JWG White Paper (Reference Data) </li></ul><ul><li>JWG White Paper (Post-trade publication) </li></ul>
  7. 7. MiFID to come – 2006 <ul><li>Feb EC implementing measures – </li></ul><ul><li>Final Level 2 text </li></ul><ul><li>Level 3 : </li></ul><ul><li>Q1/Q2 FSA Consultation </li></ul><ul><li>May FSA Conference on MiFID </li></ul><ul><li>implementation </li></ul><ul><li>May/Jun ESC votes and signs off Level 2 </li></ul><ul><li>Q3/Q4 FSA Consultation </li></ul><ul><li>Jan-Dec JWG workshops </li></ul><ul><li>MiFID Connect </li></ul><ul><li>Implementation courses & </li></ul><ul><li>Specialist workshops </li></ul><ul><li>FSA Handbook revisions </li></ul><ul><li>Mid-year MiFID Connect Survival </li></ul><ul><li>Guide (part 1) </li></ul>
  8. 8. MiFID to come – 2007 <ul><li>31 Jan Member states required to have </li></ul><ul><li>implementing measures in place </li></ul><ul><li>1 Nov MiFID comes into effect </li></ul><ul><li>Investment Firms required to </li></ul><ul><li>implement </li></ul><ul><li>Level 4 :…. </li></ul><ul><li>May Presumed industry-wide </li></ul><ul><li>testing commences </li></ul><ul><li>Mid-year MiFID Connect Survival </li></ul><ul><li>Guide (part 2) </li></ul>
  9. 9. MiFID to go <ul><li>From today: </li></ul><ul><li>< 21 months to compliance </li></ul><ul><li>< 15 months to prepare </li></ul>
  10. 10. The MiFID Challenge Bob Fuller, IT Director, IT Strategy Dresdner Kleinwort Wasserstein & Co-Chair MiFID JWG-IT 9 th February 2006
  11. 11. Commissioner McCreevy is very clear <ul><li>London, 16/12/05 (LSE Speech) </li></ul><ul><li>Today the EU (plus EEA/EFTA) has nearly 40 equity exchanges. Our main competitor, the US, has effectively two - plus of course the futures and derivatives markets in Chicago. So economic and market logic would indicate rationalization in the EU is both necessary and inevitable </li></ul><ul><li>We believe for those prepared to adapt and to make the necessary preparations, the opportunities in this new landscape of open and competitive marketplaces will be enormous. However, the head in the sand MIFID ostriches will be seriously weakened </li></ul><ul><li>MiFID is not going to go away. The time to start preparing for it is now </li></ul><ul><li>Real information sharing and cooperation between national supervisors </li></ul><ul><li>Brussels, 30/11/05 ( Société Universitaire Européenne de Recherches Financières) </li></ul><ul><li>Investment in IT systems may well take up a bigger part of firms’ budgets </li></ul><ul><li>The opportunities in this new landscape of open and hyper-competitive marketplaces will be enormous </li></ul><ul><li>The first-mover advantage will be all-important. And those investment firms that try to ignore MiFID may well find themselves fatally weakened.” </li></ul><ul><li>Brussels, October 2005 ( Dialogue Magazine Q4) </li></ul><ul><li>Developing common standards, which I regard as crucial to ensuring interoperability and enabling real competition on a European level </li></ul>
  12. 12. Level 2 text is now out!! <ul><li>The finalisation of the Level 2 text has been heavily delayed, from September originally but arrived on the 6 th February. </li></ul><ul><li>This is a very difficult political process especially as we believe most of the key parts are still Regulation NOT Directive. </li></ul><ul><li>However HM Treasury have stated that they feel the final version signed by the European Parliament will differ from that published this week. </li></ul>
  13. 13. Regulation will change your business model – what are you doing about it? Systematic Internalisation Multilateral Trading Facilities ECNs ATFs Regulatory reporting Best Execution Best Execution Advisors Retail Customers Professional Investors / EC Conduct of Business Exchanges NOTE: There is no such text as Buy Side and Sell Side in MiFID!!!! Buy Side Buy Side Buy Side Sell Side Sell Side Sell Side
  14. 14. Its not just what it states in MiFID! <ul><li>It is reasonable to expect that current significant players like exchanges will adapt their business model to compete early </li></ul><ul><li>Some current infrastructure models may not work across Europe, either through pricing, availability, IPR etc </li></ul><ul><li>New players will attempt to provide new ‘MiFID’ services to all players </li></ul><ul><li>Consolidation of Financial Services companies including exchanges should be expected. </li></ul><ul><li>‘ Buy Side’ firms may act like ‘Sell Side’ and vice versa </li></ul>
  15. 15. IT will be challenged People Boxes & Wires <ul><li>Intensified competition for limited “hybrid” IT professionals </li></ul><ul><li>Difficulty of hiring permanent staff </li></ul><ul><li>Consulting partnerships? </li></ul><ul><li>Flight to offshore labour pools / outsourcing to reduce costs? </li></ul><ul><li>Opportunities for players across the IT value chain </li></ul><ul><li>Demand will outstrip capacity and technical limitations in key areas (e.g. messaging, LANs/WANs) </li></ul><ul><li>Continued stress on overloaded data centres and BCM </li></ul><ul><li>New levels of dependency require real IT Infrastructure Library (ITIL) and 6 Sigma quality standards </li></ul>
  16. 16. Many of the challenges are common <ul><li>Joined up business/ IT/ Compliance conversations quickly </li></ul><ul><li>Commercial discussions </li></ul><ul><ul><li>Data vendors </li></ul></ul><ul><ul><li>Exchange </li></ul></ul><ul><ul><li>IT vendors </li></ul></ul><ul><ul><li>Infra vendors </li></ul></ul><ul><li>Standards decisions </li></ul><ul><li>Regulatory engagement (European Commission, CESR, Member States) </li></ul><ul><li>Migration principles and plan to maintain an orderly market post level 2 </li></ul><ul><li>European wide testing approach, spec and vendor </li></ul><ul><li>IT Industry associations </li></ul>
  17. 17. JWG-IT Working with industry associations ABI, APCIMS, FOA, ICMA, BBA, LIBA, IMA, ISDA MiFID Connect TBC Other Regions Business Model Cornerstones IT Imperatives IT Operating Models High Level Gap Assessment Exchanges Market Data IT Suppliers Implementation Plan Test Monitor IT Business Federated Central Focus
  18. 18. European implementation planning and tracking is complex Implementing Article X Interpretation (L1, L2 & L3) Current practice IT best practices Issues Plans Business needs Solutions Technology imperatives Commentary & Analysis Cost & Time <ul><li>Business requirements by geography </li></ul><ul><li>IT requirements cross geography </li></ul><ul><li>Vendor assessment </li></ul><ul><li>Migration strategy </li></ul><ul><li>Plans </li></ul><ul><li>Risk mitigation </li></ul><ul><li>Metrics & measures </li></ul><ul><li>Governance & stakeholder management </li></ul><ul><li>Communications </li></ul>Deliverables Status Requirements Key Issue
  19. 19. Regional engagement will be complex <ul><li>Specific MiFID Issues </li></ul><ul><li>Systematic Internalisation </li></ul><ul><li>Best Execution Equities ( by instrument) </li></ul><ul><li>Transaction Reporting </li></ul><ul><li>Proof of Execution Venue </li></ul><ul><li>Suitability Testing </li></ul><ul><li>Client Order Handling </li></ul><ul><li>Record Keeping </li></ul><ul><li>Pre-Trade Transparency </li></ul><ul><li>Conflict of Interest Management </li></ul><ul><li>Client Assets </li></ul><ul><li>Derivatives </li></ul><ul><li>Information to Clients </li></ul><ul><li>Common MiFID Issues </li></ul><ul><li>Outsourcing </li></ul><ul><li>Standards </li></ul><ul><li>Market Data Changes </li></ul><ul><li>MiFID Implementation Issues </li></ul><ul><li>General legislation </li></ul><ul><li>Implementation Planning </li></ul><ul><li>Testing Planning and Execution </li></ul><ul><li>Other External Factors e.g. Exchange changes </li></ul>UK DE FR ROE European European MiFID Connect T BA T BA T BA JWG-IT JWG-IT NL T BA Time?
  20. 20. To understand the requirements we have been engaged across a broad spectrum JWG-IT Industry Associations LIBA ISDA Professional Associations Best Execution Protocols Reference Data Real-time Market Data TWIST Supply Community Financial Institutions Legislative/ Regulatory CESR EC
  21. 21. In Summary: from the year 1513 <ul><li>Leading the introduction of a new order is hard: </li></ul><ul><ul><li>There is nothing more difficult to take in hand, </li></ul></ul><ul><ul><li>more perilous to conduct, </li></ul></ul><ul><ul><li>or more uncertain in its success </li></ul></ul><ul><li>Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new </li></ul><ul><li>This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them </li></ul>The Prince , Chapter VI Niccolo Machiavelli
  22. 22. MiFID: Red Alert or Red Herring?
  23. 23. MiFID: Red Alert or Red Herring? Summary Pete Hudson, Linedata Services
  24. 24. Time for Action <ul><li>This is a corporate-wide challenge </li></ul><ul><li>Technology, Compliance & Business need to work together </li></ul><ul><li>Get out in front of the agenda and make it real for your firm </li></ul><ul><li>Get organised - plan and communicate like your business depends on it </li></ul><ul><li>Quantify the size, complexity and interdependencies </li></ul><ul><li>Engage across the industry and with suppliers </li></ul><ul><li>Communicate, communicate, communicate </li></ul>
  25. 25. To Conclude….. <ul><li>FSA “Planning for MiFID”, November 2005 : </li></ul><ul><li>“… significant sections of our Handbook will need to be reworked…This will affect, to a greater or lesser extent, all firms carrying out investment business…” </li></ul><ul><li>“… even if your firm’s investment business is partly or wholly outside the scope of MiFID, this does not mean that you will be unaffected by our approach to its implementation…” </li></ul><ul><li>“… implementation changes in market structure…Firms that are well-prepared will be positioned to make the most of these changes…” </li></ul><ul><li>Commissioner McCreevy, February 2006 : </li></ul><ul><li>“… firms should start preparing now for MiFID: there will be a first-mover advantage…” </li></ul>
  26. 26. MiFID: Red Alert or Red Herring?