Abstract
The objective of this paper is to explain the proposed
regulatory requirements of Markets in Financial Instruments
Directive (MiFID), and to examine its impact on Business
and Technology. Announced in April 2004, MiFID follows
from the Investments Services Directive (ISD) of 1993.
The core rational of MiFID is to create a set of common
regulations for financial services firms in European
Union, which will drive the move towards creation of
a single pan-European market, following the Euro implementation.
Since the European Parliament’s
announcement in April 2004, the European Commission
has mandated CESR (Committee of European Securities
Regulators) to provide technical advice on ‘Level
1’ and ‘Level 2’ measures. By end
of January 2005, CESR provided EC with the first level
of technical advice. At the time of authoring this paper,
CESR has come out with the next level of technical advice.
Based on the advice from CESR and inputs from industry
representatives, the European Commission is expected
to come out with the detailed rules to be adopted. The
original schedule for implementation was 30th April
2006. This is likely to be delayed by up to one year.
MiFID defines the types of organizations and financial
instruments that are impacted, and proposes regulations
across the business and operational value chain. The
business areas include management of client information
and conflicts of interest, investor protection, best
execution, client order handling, market transparency,
pretrade disclosures and post-trade disclosures.
The industry reaction has been largely
positive, and the first real response came when FPL,
RDUG, FISD and ISITC joined arms to create a group that
will focus on coming up with compliance requirements
and best practice suggestions.
On the technology front, MiFID will
affect the front, middle and back offices in securities
firms. The key challenges include data aggregation and
dissemination, reference data management, and addressing
the impact on information exchange standards. The vendors
of off-the-shelf front and back office solutions will
have to up-grade their products to make them MiFID-compliant.
As a result, IT systems of regulatory bodies and stock
exchanges will be affected. Vendors of third party software
solutions and BPO providers will need to identify pain
areas and propose focused solutions to exploit the huge
opportunity presented to them. On the architectural
front, Service Oriented and Event Driven architectures
will be ideally suited for the emerging scenario.
Author
Rajeev Mukundan
To know more about Wipro in finance, go to www.wipro.com/finance
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