Wednesday, June 06, 2007

MiFID readiness - a long way off

Having attended more than my fair share of events on the Markets in Financial Instruments Directive (MiFID), one has grown a little tired of hearing consultants' rhetoric that sell-side firms should not treat MiFID as yet another compliance issue, but in terms of the strategic benefits it could bring to their business.

Let's be frank; apart from the large sell-side firms which see MiFID as an opportunity to widen the gap between them and their nearest competitors, most firms are still treating MiFID as a compliance issue. Cultural and market differences also appear to play a part in how MiFID is perceived by firms and national regulators.

As a lot of Europe's stock trading activity is concentrated in financial centres such as London, it is no surprise that the UK was amongst the three member states to transpose MiFID into national law by the 31 January deadline. All other member states, including key financial centres such as France and Germany have dragged their heels.

At SunGard's annual European client event yesterday in Lake Como, Italy, the findings of a survey of 200 German investment firms and their preparedness for MiFID were presented. The survey was conducted in February this year following on from a similar survey a year earlier.

While more than 50% of firms reported that they were "very familiar" with MiFID in the 2007 survey, compared with 15% in 2006, when it comes to budget planning and seeking new solutions to address the impact of best execution requirements under MiFID on their IT strategies, the figures were less impressive. With the 1 November deadline for MiFID a mere four and a half months away, only 44% of German firms were in the implementation phase and 47.5% had analysed the impact of MiFID on their business strategy.

The point is that whilst a handful of investment firms may view MiFID as a strategic opportunity and may be further advanced in their preparations, firms in other European countries do not view it as strategically and it is doubtful that they will even want to become 'systematic internalisers' under MiFID. Hence they are likely to invest less time and money on MiFID than say top tier investment firms.

Another factor is that outside of the UK, a number of European markets support the concentration rule, which demands that all trading activity occur on the national exchange. Under MiFID the concentration rule will be removed, but there are concerns that in an effort to preserve the status quo, some European securities regulators will just "cherry pick" bits of MiFID to enforce.

The EC certainly have a job ahead of them to ensure that MiFID is implemented consistently and in a harmonised fashion across all member states. Not only that, the Commission's commencement of infringement proceedings against member states that failed to transpose MiFID into national law by the 31 January, is unlikely to have the desired effect.

Taking member states to court is typically a lengthy process, which is not going to speed up MiFID's implementation. Perhaps that is why the Commission has resorted to "naming and shaming" techniques such as publishing information pertaining to member states' progress as well as league tables. 2007 may be the year of MiFID's introduction, but it is hardly the "year of the MiFID" as most firms and member states "have a long way to go before [they] can talk about MiFID readiness."

1 comment:

Hunter-Gatherer said...

If was a UK bank I would not be too sanguine about readiness for MiFID. Other European banks will be looking at London's business and wondering if they can attract it to a lower cost venue. It's not about compliance it is about competitiveness and the financial equivalent of EasyJet could now enter the market and clear out the least efficient performers.