Select Committee on Treasury Written Evidence

Memorandum submitted by peterevans


  1.  MiFID has elicited a positive response from financial practitioners in the UK who view the establishment of an open, competitive and thriving pan-European Capital market as an opportunity for the continent to compete globally with the US and Asian markets.

2.  Naturally, compliance with the Directive presents numerous IT and infrastructure challenges which many UK institutions are facing head-on in an increasingly regulatory-heavy business arena.

3.  A chief aim of MiFID is to provide greater protection to the investor, through transparency of pre- and post-trade information and the formalisation of a best execution policy. This is critical to sustaining a harmonised market where all participants play by the same rules.

4.  There is likely to be significant consolidation over the next five years as major financial houses compete to provide the best all-round services at the best price, with the major banks establishing themselves as "markets" in their own right. This is likely to lead to the emergence of a "top tier" of institutions competing at a global level, powered by an EU-wide home market free from the constraints of country-by-country barriers.

Is the UK financial services sector (and technology firms in particular) prepared for the domestic implementation of MiFID?

5.  Resilient, effective technology infrastructures will be at the heart of successful MiFID compliance, and major investment houses are generally responding well to the challenge—with many viewing the opportunities post-MiFID as a driving force in ensuring suitable levels of data transparency, management and best execution policy when the new regulations are implemented in November 2007.

6.  The introduction of systematic internalisers will be a noticeable difference under the new regulatory set-up. Firms will become "concentrators" of their own liquidity—and those who are able to reach a critical mass will be able to compete with traditional exchanges without the burden of fees under the current regime. From this standpoint, the timetable for compliance is challenging but realistic—putting this infrastructure in place is a fairly straightforward process as long as the industry is able to cooperate efficiently using defined standards; firms are looking to technology vendors to take a lead and a lot of work has already been done in this area.

7.  What firms will have to consider within the existing time frame is their strategy to prove best execution retrospectively on behalf of their clients. Obviously these methods will vary by instrument type and it's a likely prospect that some of these processes go through a number of iterations in the post-MiFID environment. The most sensible thing firms can do at this point is review their existing commitments to data storage and retrieval, and ensure that a clear pathway can be seen through each trade. Those responsible for enforcement of the new directive should be in a position to request the details of a random clutch of trades—and receive a clear, concise breakdown of how the firm went about ensuring best execution.

8.  Firms taking the systematic internaliser route are the ones who are most impacted by MiFID's myriad rules and regulations. They will be required to publish a firm quote accessible to the market on the publicly traded shares that they internalise. On top of this, they must—like all firms—keep records five years on the full process of transaction.

9.  Another consequence of financial institutions becoming "markets" in their own right is likely to be a high number of mergers and acquisitions as major players in the new market emerge. A high number of traditional exchanges (currently approximately 40) competing with the new "pseudo-exchanges" across Europe is ultimately not tenable.

10.  However, the process of "preparation" for MiFID has been hampered to some extent by the "moving goalposts" of the legal and regulatory deadlines.

11.  It's generally held that about 80% of the full content of MiFID was available by mid-2005. However, re-drafts and amendments were published during the latter portion of 2005—largely as a result of the ongoing consultation process with the industry sector, and this may have led some institutions to delay their strategic planning for compliance.

12.  A final level 2 draft was published in February 2006—and it's now widely accepted that this represents what the final Directive will look like.

Is the proposed MiFID implementation timetable is realistic for UK firms?

13.  It's likely, from a technology standpoint, that implementation programmes to ensure compliance will spill into 2008 and beyond. This is a natural consequence of such a complex bureaucratic change, and to be expected. Those in a regulatory role should be prepared to understand this and work in a constructive capacity with financial houses to iron out any compliance problems. Firms need to show a willingness to comply—but the mechanisms are likely to be iterative for a period post November 2007.

14.  It's also important for regulators to understand that "best execution" doesn't simply mean "best price". It involves a combination of factors—the speed of the transaction, its total cost including fees to the financial institution, and the efficiency of the way it is settled.

15.  Another key factor is the split between and "regulatory" and "directive" measures contained in the EU's proposal. The number of "regulatory" measures—those which are unwavering and must be adopted into national law in each of the participating member states, are clear-cut and will hopefully establish the much-sought-after "level playing field" where all market operators are working under the same legislative regime.

16.  The rest of MiFID—which can be described as a series of "directive" measures—are left open to interpretation by the competent authority in each country. This may have an effect on market practices and cause a degree of confusion in the short term. It's possible that policy will vary from country to country, with room for interpretation as to whether or not a firm has met the required standard.


peterevans is a leading independent provider of front to back office systems to the financial services sector, providing both global solutions to major institutions and highly-focused technology to smaller organisations.

The Company's creative, high-end solutions integrate seamlessly with existing infrastructures to ensure business performance is optimised. A flexible approach to implementation allows software configurations to meet specific requirements—either as a series of modules or as a full, standalone system.

peterevans' flagship products TRACS and Axim support end-to-end straight through processing for the full range of automation and transaction requirements, including SWIFT ISO 15022 messaging. Tira, the company's front to middle office system, links effortlessly with the back office, providing fund and investment managers with one of the most comprehensive tools on the market.

March 2006

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