With the November 1 deadline approaching, the intense speculation and uncertainty toward the end of last year has given way to a more pragmatic attitude in the market, says PJ Di Giammarino of JWG-IT. However, he warns that other than a few lawyers and consultants, very few vendors can put credible numbers on MiFID implementation costs.

PJ Di Giammarino CEO JWG-IT Group Ltd.

The reality of an imminent MiFID deadline this year has quickly brought back-offices across the EU to action.

True, only Bulgaria and the UK made the 31 January transposition date, but word on the Continent is that markets are now moving. Commissioner McCreevy has threatened to begin infraction proceedings against those countries that did not take the date seriously and the head of CESR has been replaced. The Commissioner is back on the speaking circuit proclaiming the urgency of finding pragmatic, workable solutions to ensure we achieve maximum benefits from MiFID.

Regulators are openly stating that they are not far from meeting the 1 November deadline. However, if the CESR consultations are any indicator, there is a wide divergence of opinion concerning the role of the centre versus the local regulators and likewise, the degree to which effecting changes will be left to market forces. A homogenising influence will be essential in order to avoid untenable regulatory arbitrage. The viability of outsourced regulation is being dismissed as a possible solution to meeting timelines - the location of new FSA branches is therefore interesting speculation.

Turquoise and the Boat have left the harbour, and the exchanges have begun to respond. Discussion is now underway across Europe as new utility ventures emerge. CESR has picked a junior partner for transaction reporting and the market hopes that it will be in place soon.

For the front-office, attention is turning to a) plans for how to get paid and b) how they will handle the difficult conversations without stepping over new regulatory lines, most notably the buy-side and sell-side ‘how to do business’ dialogues. Conflict lies between those opposed to the speed of change and those that have been waiting years for the creation of a true EU marketplace – something the ISD tried, but failed, to achieve.

Our research shows that change programmes are up and running in the Tier 1 institutions. The labour market is reflecting this as scores of professionals are looking at ‘change the bank’ efforts well beyond the November deadline – and a likely skills shortfall is on the horizon. We are still seeing gaps in the firms’ communications – it appears not to have dawned that we have an HR challenge approaching. Senior analysts will be looking to earn around £900 per day with the top 100 MiFID-sage contractors reaching £1,500 per day in Q107.

In the back-office, operations and compliance appears yet to engage – surprising, given that the data volume issue from record retention alone will likely have as large an impact on them as the front-end traders’ search for liquidity, speed and best execution. Across the 14 major change imperatives, we have catalogued 300 functional targets which need to be met for MiFID. These attract the vast majority of attention, at the expense of the data and infrastructure requirements, which comprise the other 700 things to worry about in the course of delivering MiFID for a financial institution. Overall, it is clear that business analysts are still wrestling the 40 ‘known unknowns’ but reference architecture and solutions also remain undefined. The top priority gaps are transaction and trade reporting, customer data management, best execution and record keeping.

In working with the community to define a path forward, JWG-IT Special Interest Groups (SIGs) have emerged as a neutral way to facilitate the dialogue about priorities and needs for the 80% common solutions. The Testing SIG has paved the way, working towards test routines for MiFID requirements. The firms are all backing the four domain SIGs they requested in workshop sessions (Offerings, Orders, Transparency and Enterprise) and key vendors have accelerated TechSIG’s efforts to complete the picture by delivering common reference architecture specifications to which they can build their solution ecosystems.

Many vendors are still shielding themselves behind poorly-thought-through, transparent, press releases, preferring the relative comfort of the conference circuit to the challenge of defining solutions for the bill-payers. However, those that have taken the time to build realistic value propositions are reaping the benefits of valid dialogue with clients who are now on a steadily-increasing march towards investment in better operating models. If nothing else, the regulatory banner has provided the platform to make the industry’s vessels more seaworthy as they begin to enter new waters and, in the year of implementation, the market is feeling increasingly enabled.

Fasten your seatbelts – it’s going to be a fun first half!

www.jwg-it.eu - sign up now for free regulatory alerts, commentary, information on the Special Interest Groups and our whitepaper, MiFID: The Roadmap to Implementation.

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Filed under: Issue 1 - Spring 07