Thursday, January 25, 2007

'All singin' all dancin' solutions

All it takes is an all-encompassing regulation like MiFID for consultants and vendors with 'MiFID-ready' solutions to come crawling out of the woodwork. That was the case on Wednesday at Finexpo in London where a multitude of vendors were touting the latest and greatest solution to help firms comply with MiFID.

Microsoft announced its "Mix and Match" MiFID solutions suite comprising eight different technology solutions developed in conjunction with IT partners (Aleri Labs, BearingPoint, C.O.S., Debug Software Tailoring, Fintecs, Gissing Software, HCL, HP, Progress Apama, Qumas, Rapid Addition, Singularity, SunGard, SuperDerivatives, TAP Solutions and Xenomorph).

Microsoft's MiFID solutions suite aims to help firms address planning and testing, client classification, best execution, reporting, market connectivity, reference data and trade history, systematic internalisation and systems integration.

Similarly, GoldenGate Software was showcasing how its data management platform, "quickly and easily" addresses requirements for transactional data integration, consolidation, publishing and reporting under MiFID. Sound familiar?

One major software vendor even said to me, "It's [MiFID] great for us." Apart from a few top tier investment banks that must be rubbing their hands with glee and the league of consultants being paid considerable sums to help firms get to grips with MiFID, and we must not forget the vendors hoping to cash in on the 'compliance showboat', they must be among the minority thinking, 'Bring MiFID on.'

Yet, with only nine months to go before MiFID becomes law, haven't the vendors left their run a little too late? Most of the top tier firms' preparations are arguably well underway, smaller mid-sized firms are probably scratching their heads wondering if they should build, buy, outsource or sell up altogether.

While it may be tempting to think that compliance with MiFID is as easy as melding together a couple off-the-shelf solutions, and 'hey presto,' unfortunately it is not going to be as simple as that.

No one can say with any certainty that the vendor solutions being touted today are actually what the market is looking for given that there is still considerable uncertainty and confusion, even amongst Europe's myriad securities regulators, as to how MiFID will finally play out. "There is no 'all-singin' all-dancin' solution," for MiFID said one industry thought leader, and few vendors appear to be talking about the CRM and Know Your Customer aspects of MiFID, which was highlighted by various industry working groups from day one.

Details around best execution under MiFID are still unclear. "There is no definition of best execution," says Dr Giles Nelson, director of technology, Progress Software, which has incorporated the complex event processing and business activity monitoring components of its Apama platform within Microsoft's MiFID solution suite to help firms monitor best execution. "It [best execution] will require providing sufficient visibility to the end customer about how their best execution policy is being met, which means firms need to be able to gather that information and store it persistently," he says.

But are any firms, except perhaps for the top tier investment banks that are going to be clear winners from MiFID, making IT investment decisions when there is insufficient clarity around some of the fundamental aspects of MiFID? PJ DiGiammarino, CEO, JWG-IT, says when it comes to MiFID, most firms' back offices remain a "Bermuda Triangle," with the operational, technology and legal/compliance silos unaligned.

No one knows for certain how many execution venues firms will need to monitor, let alone integrate with. Will the exchanges consolidate? Perhaps. "Consolidation [amongst exchanges] in Europe didn't happen in 1999," says Jim Gollan, chairman, virt-x, referring to Deutsche Bourse's original failed bid for the LSE. And even if it happens this time round, will it be good for the industry?

Gollan says the "paradox" of exchange consolidation is that, on the one hand, more competition means less monopolisation of the business by national exchanges. On the other hand, any form of consolidation as we have witnessed in recent weeks with the wrangling between Nasdaq and the LSE, is more likely to be shareholder driven. "There will be slim pickings for users as a result of exchange consolidation," Gollan said at Finexpo on Wednesday. "It may result in less competition and constrain exchanges from making pricing cuts."

There is still considerable speculation in the market as to whether Project Turquoise is a clear statement of intent or just an exercise in "sabre rattling" by the major investment banks in an effort to drive execution prices on the exchanges down. But if Project Turquoise gets off the ground, Gollan says the banks behind it need to be careful that they don't end up erasing any cost savings through high market impact costs caused by liquidity fragmentation.

No comments: