A Market Turned Upside Down
The European Union's Markets in Financial Instruments Directive (MiFID) is scheduled to go into effect in November 2007. Even U.S.-based firms will need to have a thorough strategic plan for compliance in order to stay competitive in the global markets.Why It's Important: MiFID ushers in a major restructuring of European capital markets that will alter the competitive landscape. Widely recognized as broader in scope than the SEC's Reg NMS, MiFID makes fundamental changes to rules governing client interaction and the suitability of investment strategies, best execution, and the definition of an execution venue. New business models will crop up to capture revenue from systematic internalization and market-data distribution, and firms that cannot adapt will inevitably fade away.
Although MiFID will be enforced by the European Commission and individual member state regulators, its impact will extend far beyond the European Union. Even U.S.-based firms will need to comply with MiFID's requirements in order to deal with European clients, counterparties or business partners.
Where the Industry Is Now: At the end of 2006, firms were in discussions with business analysts and consultants in an attempt to determine their strategies for achieving MiFID compliance. Toward the end of the year and into early 2007, front- and back-office leaders will collaborate to make hard decisions about how to prioritize MiFID compliance.
Many firms will elect to minimize the impact of MiFID and simply integrate compliance initiatives into their normal mode of business. Others will choose to exploit the regulation and the opportunities it opens for new business by opening systematic internalizers as trading venues and selling market data.
Focus in 2007: Early 2007 will see firms defining their policies surrounding MiFID, including policies on best execution, customer classification and investment-strategy disclosures. The beginning of the year also should see clarification from European regulators on outstanding uncertainties, which should expedite the process. These definitions should be complete by April, according to consultants, in order to meet the November implementation schedule.
By spring firms will engage in customer education efforts so that clients understand the changes to policy and procedure, and how MiFID's client-classification rules will affect their investment activity. Throughout the summer, the buy side will be shopping across the sell side for the best deals under the new guidelines, which will affect everything from product offerings to the pricing of execution and market data.
The heavy lifting of system rollout and testing should begin in late summer or early fall.
Industry Leaders: Although several global investment banks have invested in launching new pan-European execution venues to participate in the new competitive environment created by MiFID, no firm has yet to take a significant lead in their offerings to clients. However, financial firms operating in the U.K. stand to benefit from the aggressive approach to market preparation taken by the Financial Services Authority, which has released copious amounts of market guidance since MiFID's inception. Those U.S.-based firms that can dovetail their MiFID compliance efforts with similar Reg NMS activities also stand to gain through improved efficiency.
Technology Providers: MiFID, like Reg NMS, is a very large pie, and virtually every solution provider has a finger in it. While some vendors position themselves as MiFID specialists, the regulation will affect the entire transaction life cycle, from customer data to post-trade reporting.
The Price Tag: Estimates on the overall cost of MiFID vary widely, but it is sure to be expensive. A survey by the FSA, the U.K. regulator, puts industry costs at anywhere from US$2.3 billion to US$12.6 billion by 2010, with ongoing annual costs in the hundreds of millions industrywide.
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10 Critical Business Technology Issues for The Street
In 2007, firms will face the daunting full rollout of Reg NMS in the U.S. and the likely beginning of MiFID implementation in Europe while they continue to struggle with data privacy, OTC derivatives, a shortage of talent and the potential of Web 2.0, among other challenges.  more... |
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Data Privacy: Financial Institutions Try to Keep Data Breaches Down in 2007
Several big-name data breaches made 2006 an ugly year for the securities industry, and security and privacy professionals are hoping to bring the problem to a halt this year.
In the Search of Liquidity: The Time Is Now
Now that Reg NMS is finally here, are firms ready to access 30 or more trading venues in their search for liquidity? After a year of investment in technology, firms need to demonstrate that their systems are up to the challenge.
The Buy Side Jumps on Board the Push to Automate OTC Derivatives
Now that traditional buy-side firms and hedge funds are increasingly investing in credit derivatives, the fastest-growing product in the OTC derivatives space, the industry is focusing on automating post-trade processes to reduce operational risk.
Firms Ready to Dive Into China's Financial Markets
The opening of the huge Chinese financial services sector to foreign-based institutions presents a gamut of opportunities -- whether in retail and corporate banking, investment banking or asset management -- for North American and European firms.
The Right Stuff: A Good IT Manager Is Hard to Find
It's going to be a good year to find a new job, as the shrinking talent pool has created a strong job market for IT workers with strong business acumen.
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NYSE Requests a Four-Week Extension of the Reg NMS Deadline
Although it has been beaten to death by industry analysts and press, the importance of the changes to the U.S. securities industry spurred by Reg NMS cannot be overstated. The industry anxiously awaits full implementation of the regulation in 2007.
A Market Turned Upside Down
The European Union's Markets in Financial Instruments Directive (MiFID) is scheduled to go into effect in November 2007. Even U.S.-based firms will need to have a thorough strategic plan for compliance in order to stay competitive in the global markets.
Wealth Managers Turn to Unified Managed Accounts to Better Serve Wealthy Clients
Unified managed accounts and unified managed households are part of a growing trend to electronically aggregate a client's holdings in as close to real time as possible. The goal of such cross-product, cross-institution and cross-individual accounts is superior portfolio management, including tax optimization and risk mitigation.
Web 2.0 Enriches Applications and Services, Making Them More Compelling to Users
One of the hottest buzzwords of late, Web 2.0 refers to Rich Internet Applications (RIAs) that use the Internet as a platform to create interactive user interfaces that resemble PC-based applications. Typically, RIAs emphasize online collaboration among users.
Surging Electronic Trading Volumes and Reg NMS Require Financial Firms to Enhance Underlying Technology Infrastructures
Electronic trading is exploding and firms are rapidly expanding technology infrastructure to handle the increases in trade volumes and associated market data and messaging.
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SPECIAL REPORT
SMS Messaging and Asynchronous Data/Voice Capabilities Will Shape 2007 Wireless Market
SMS and text messaging will take center stage for financial organizations that support wireless access for clients, reports Joseph Ferra, chief wireless officer at Boston-based Fidelity Investments. Those trends, combined with the introduction of asynchronous data and voice capabilities on phones, will drive increased wireless usage for financial transactions.
Putnam's 64-bit Architecture and Outsourcing Strategy Allows IT to Focus on Core Competencies
Boston-based Putnam Investments has leverage outsourcing of certain processes so business leaders and technology professionals can focus on projects that provide specific value to the business, according to Philippe Bibi, Putnam's CTO.
Web 2.0 and Data Privacy Will Define Financial Services in 2007, Says Steve Rapp, SVP & CIO, Nicholas Applegate.
The move to further protect client data and the maturation of Web 2.0 related businesses are two topics that will define financial services in 2007, according to Steve Rapp, senior vice president and CTO at San Diego-based Nicholas Applegate Capital Management.
Mellon Focused on Bank of New York Merger and new Private Wealth Management Platform
Mellon Private Wealth Management looking to take advantage of the Bank of New York's international reach all while launching a new platform that will transform the way wealth managers interact with ultra-high net worth clients' other advisors, according to Tim Tully, SVP & COO, Mellon Private Wealth Management.
Cross-Asset Algorithmic Trading Goes Mainstream, While Software As a Service Gains Traction
More buy-side firms will adopt cross-asset class algorithmic trading in 2007, while software as a service will again be en vogue, as the comfort level with the technology and Web 2.0 functionality help adoption rates, says David Dart, a former managing director and CIO Americas with a large German bank (as of Dec. 31, 2006).
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