Get ready now for MiFID, banks warned

Analyst Tower Group warns the Markets in Financial Instruments Directive (MiFID) will create one of the greatest legislative changes seen in Europe's securities markets "in over two decades".

This is because MiFID will require many firms to publicly state prices for equities traded on their own books - effectively making them provide the same levels of information as exchanges.

For example, companies will have to publish the prices of stocks they deal in and keep that data for up to five years - a move that will lead to big spending on data warehousing, communications and order management systems.

The analyst warns the directive will cost investment banks up to £22m - with half of that spend going on technologies including workflow; business processes outsourcing; connectivity; service-oriented architectures; and data warehousing.

Across Europe this is likely to mean spending of around $1bn (£560m). But as the directive won't be fully ratified until early next year this could still go up or down. The directive will come into force in April 2007, although there are some proposals to shift the deadline to October 2007 to give firms a chance to get ready.

TowerGroup associate director Chris Skinner told silicon.com that banks and financial organisations affected shouldn't wait until the details have been ironed out.

He said: "If you know its going to happen then wouldn't it make sense, if you are a major dealing organisation, to get yourself ready sooner rather than later? If you sit back and wait until you know what it is going to do then you will end up writing a blank cheque to your supplier to be compliant in 2007."

He added: "Work out what is the minimum you have to do to be compliant and do that now. Then work out how you can take advantage of being compliant."

Analyst Financial Insights says MiFID is likely to increase demand for outsourcing and application service provider offerings as smaller players look for the easiest way to comply.

David Lester, CIO at the London Stock Exchange (LSE), is one of those already looking at the potential upsides: "Our view of MiFID is as an opportunity. The intention of MiFID is correct which is to open up competition. I believe we've got a good model and the best technology and we want to go out there and get more European business," he said speaking at the Financial Services IT Summit earlier this month.

And Adam Kinsley, Director of Regulatory Strategy at the LSE, said, MiFID can offer benefits - depending on how much compliance costs. "There will definitely be benefits - the question is what will the costs be," he said.

He said MiFID may help companies streamline systems. At the moment if firms are operating across Europe they have to send daily reports to each of the regulators. "Under MiFID you just have to go to your home regulator and they will make sure the report ends up in the right place - there's an opportunity for firms to rationalise their systems."

The costs of aggregating data and connecting to new execution venues - effectively quasi-exchanges - may be less than expected because there may be fewer new execution venues than expected, he said.

Tony Kirby, partner at Accenture and co-founder of the MiFID joint working group, said: "Firms that are looking at MiFID as an exercise in competitive advantage are definitely getting moving. Increased interdependence and requirement for real-time communications will need new standards to work. Firms will have to invest in data retrieval and forensics to evidence that they provided best execution, plus increased storage to keep market, reference and classification data on-demand.

"An average investment bank could easily be spending $30m over the lifetime of MiFID to comply. Fund managers might easily spend north of $5m. The more complex your business the more you spend."