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

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