Introduction
The Markets in Financial Instruments Directive (MiFID) 2004/39/EC is a European Union law that provides harmonised regulation for investment services across the member states of the European Economic Area . The main objectives of the Directive were to increase competition and consumer protection in investment services. MiFID was conceptualised as the cornerstone of the European Commission's Financial Services Action Plan whose measures were designed to significantly change how EU financial service markets operate. In Nov 2007 it became the defacto directive governing Investment Services replacing the then prevalent Investment Services Directive. However since its adoption by firms and regulators the Financial services Industry underwent a period of significant upheaval and change which prompted a review of some of the key aspects of the Directive leading to a revised and enhanced directive called MiFID II
In October 2011, the European Commission adopted formal proposals for a Directive on markets in financial instruments repealing Directive 2004/39/EC of the European Parliament and of the Council (MiFID II Directive), and for a Regulation on markets in financial instruments (MiFIR) which would also amend the proposed European Market Infrastructure Regulation [EMIR] on OTC derivatives, central counterparties and trade repositories.
MiFID II builds on the initial MiFID Directive to promote further competition in the European securities market, modernise market structures, increase market transparency, reduce data fragmentation, enhance investor protection and harmonise the regulatory regimes within different EEA jurisdictions. It will also extend the MiFID regime from primarily focusing on equities, to increased requirements for other product classes, including OTC derivatives and fixed income products, and will cover a broader range of trading venues.
Once it is adopted, which likely will be in mid- to late-2012, member states will then be required to implement MiFID II's provisions into their own national laws. The period allowed for this generally is two years after the adoption of a Directive. However, firms should start to assess the potential market and business specific impacts of the proposals, for instance on the electronic trading of derivatives, and use these to inform their business plans. Similarly, they should look at the linkages between the various regulatory reforms in the EU and elsewhere, such as the Dodd-Frank reforms, to identify potential opportunities and synergies, thereby minimising the cost of implementing the amendments.
Impact on IT systems and Complexity
Everyone operating in the securities markets including Broker dealers (sales and trading), Investment banks and corporate finance houses, Market infrastructure providers (e.g. trading platforms, data aggregators/disseminators), Buy-side firms (traditional asset managers and hedge funds), Wealth management firms, Custodians, Energy and other commodities players will be affected. The impact in terms of time, effort and associated costs will vary, but no-one will be immune. MiFID II will have a significant impact across the whole securities value chain, from front-office sales and trading, through to back-office reporting and all points in between. Further, the way firms interact with their clients and other market participants is also likely to change radically
From an IT Systems perspective this will have a big impact on the following:
· Transaction reporting
· Client take-on systems
· OTC derivatives trading
· Market Data access/provision
· Automated trading systems
· Systems architecture for trading facilities (MTFs, SIs, OTFs)
· Systems architecture for crossing systems
· Pre and post trade transparency and consolidated tape
How we can help
SCS has extensive expertise in the Financial markets arena and we can bring in the required market expertise and certified compliance technology professionals to assist with the Technology Strategy and high level planning as well as provide relevant advice and approaches to help firms with their MiFID II implementation needs from a technology perspective. For companies who are in early stages of their MiFID II programs, SCS offers the following solutions
a) Consultancy
c) Services
For more information please write to our experts at mifid.practice@scs-emea.com or use our Enquiry form