Transcript Document 7932672

MiFID
Presentation for Securities & Investment Institute
1 November 2007
Christopher Bond MSI
Senior Adviser
www.sii.org.uk
MiFID
Part 1 – A Retrospective View
Part 2 – Some Work-in-progress
Part 3 – Possible Economic Consequences
MiFID
Part 1 – A Retrospective View
The Question
How Big is MiFID?
 The Financial Services and Markets Act 2000 (“N2”)
and largely new rules?
 The Financial Services Act 1986 and LSE ownership
changes (“The Big Bang”)?
 The Closing of the LSE Floor and market maker
screen dealing?
 The Consolidation of Exchanges including NYSE
Euroclear?
 The rise of Hedge Funds and Private Equity?
Looking back...
 27 Countries have created a single EU Market for
investments
 Similar Conduct of Business Rules in all countries
 Exchanges have lost their monopoly and new trading
markets will emerge
 After sticky start, many larger financial companies
have accepted and largely welcomed the changes
 FSA has introduced More Principles-based
Regulation and T and C changes at the same time.
But...
 Many EU countries will be late implementing.
 Some Countries and many smaller firms are
unprepared for the changes
 Wholesale business is more regulated
 It’s been very costly (in money and sleep)
 Doubts remain about increase in procedures and
record-keeping
 Some new electronic markets are starting slowly
 Will other EEA countries apply MiFID in practice?
MiFID
Part 2 - Some Work-in-Progress
Looking Forward...
(The EU Dimension)
 Will the FSA expect firms to be ready on 1
November?
 What happens with late-implementing countries?
 Whose Conduct of Business Rules apply to Branches
services in third countries?
 Transaction Reporting Unknowns.
Looking Forward...
(The UK Dimension)
 Best Execution (illiquid instruments/training/consent
to OTC Dealing/scope of policy)
 Categorization of Buy-side by Sell-side Firms
 New Inducements Rule (providers and
distributors/disclosures/introducers)
 Client litigation
 Managing conflicts of interest
And not forgetting corporate governance...
MiFID
Part 3 - Economic Impact
So how will MiFID change the Markets?
 New style markets( Multilateral Trading Facilities and Systematic
Internalizers) put on equal footing to traditional exchanges
 Emergence of new liquidity pools (Project Turquoise, Chi-x etc)
 McCreevy’s drive to reduce cross-border trading costs
 New transaction reporting competition (LSE and Project BOAT)
 Link to ECB’s eurosecurities settlements system initiative (SEPA)
 Link to EU Commission’s Review of distribution of UCITS and alternative
funds
 Exchange consolidation and separation of clearing from trading
BUT...
how much is due to technology change eg smart order routing?
Markets
Multilateral Trading
Facilities and Systematic
Internalisers
The end of the
Concentration Rule
Exchanges
Separation from Transaction
reporting (and sale of data)
Publication of Pre-Trade
and Post-Trade equity
prices
Markets - Example
Yesterday
 There is a Client Order for a UK equity
 Currently main markets are LSE and Plus Markets
 The firm can choose which to use
Today
 The firm’s Execution Policy will review these markets
and electronic order matching systems e.g. Chi-x,
and, if traded outside UK, at other exchanges and
markets
So how can Firms adapt their Business
Strategies?
 Start/Increase cross-border services
 Move/Focus on areas of strength e.g. execution-only
→ Advisory Services → Discretionary Management
 Become a market maker or MTF
 Sell your price data
 Use regulatory arbitrage eg categorization of clients
So how can Firms adapt their Business
Strategies?
(Reduce Costs)
 Commoditize international products
 Become a market maker, systematic internalizer or
Multilateral Trading Facility
 Join a network to share costs, or even merge?
The Challenge and Opportunity of MiFID
The clear cost of
implementation of MiFID will
only prove justified if firms
take the opportunities
generated to raise revenues.
John Tiner, Chief Executive of the FSA - May 2007
And the next big things?
 ICAAP under Pillar 2
 Disclosures under Pillar 3
 The Retail Distribution Review