MiFID II - where are the technology opportunities?

1 December 2011

Regulation continues to be a buzzword for the financial services sector, particularly as the economic volatility continues over three years after the collapse of Lehmans.

For many financial institutions regulation is viewed as an albatross around the neck in terms of both costs and time. Some commentators argue that clipping the wings of banks and market participants could stunt growth in the sector and the wider economy.

However, while some may complain about the ever increasing weight of their regulatory burden, the new rules offer business opportunities for financial technology providers.

Markets in Financial Instruments Directive (MiFID) and the recent revisions, released last month as MiFID II, provide such an opportunity. The European Commission’s legislation calls for greater transparency of data and transaction reporting surrounding trades as part of a wider strategy to restore stability to the markets.

Pat Phillips, practice director at Xceed, an independent IT professional services company, said that while businesses will have additional infrastructure work and costs to comply with these changes, it should also create jobs for technology professionals in the banking space.

One of the key components of the update to the original MiFID is, as Phillips says, to see the “umbrella of regulation opened further”. The net will be cast much wider than just the equity markets - other asset classes such as commodities and derivatives markets are all included.

Phillips said that the changes now mean more responsibilities for the suppliers of organised trading facilities (OTFs).

“They have been doing a great deal of thinking to ensure the markets are orderly and fit for purpose. From a technology perspective it means they need to ensure code is robust and resilient so that all the limits and stocks can be affected appropriately,” he explained.

Phillips added that there are also opportunities for software providers to develop products to offer connectivity between the OTFs and the clients themselves.

The implementation of MiFID II is expected to take place at some stage in 2012 - but Phillips was sceptical that this would occur - and market players are behaving accordingly.

He said: “The European Parliament, Council and Commission haven’t got themselves straight on this yet. Senior figures at financial institutions want to make sure that some of the text is watered down, otherwise the costs are going to be prohibitive to them.”

As a result of these costs, many banks and financial institutions are being reticent when it comes to embracing the legislation.

“I don’t think many firms working too hard on compliance just yet. Many won’t put their hands in their pockets and start investing in the technology side of MiFID II until the ink is dry on regulation Iitself. This is because it may all change - and in these austere times they haven’t got money to burn."

"Ultimately they’re not going to invest significant amounts in something that might never come to pass."

By Jim Ottewill

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