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ASSET MANAGEMENT

MiFID:Red Alert or Red Herring?

ASSET MANAGEMENT

MiFID: Red Alert or Red Herring?

Pete Hudson, Linedata Services

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ASSET MANAGEMENT

Agenda

8:35 MiFID: Past, Present and FuturePaul Westgate Linedata Services

The MiFID ChallengeBob Fuller Dresdner Kleinwort Wassertein

Co-Chair of MiFID JWG-IT

9:00 Panel-led DiscussionTom Phelps (Chair) Cutter AssociatesBob Fuller Dresdner Kleinwort WasserteinAndrew Allwright ReutersSimon Leighton-Porter VSAF Ltd

Co-Chair of MiFID JWG-Standard Protocols

10:00 SummaryPete Hudson Linedata Services

10:15 Close

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MiFID: Past, Present and Future

Paul Westgate, Linedata Services


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MiFID to date - 2004

Level 1:

Apr MiFID adopted by Council ofMinisters

Level 2:

Apr-Dec CESR consultation andadvice to the EC


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MiFID to date - 2005

Jan-May CESR consultation andadvice to the EC

Level 2 text:

Mar-Jul EC implementing measuresworking documents

Sep EC implementing measuresworking documents

Apr Joint Working Group (JWG)

May JWG first meeting

Aug JWG White Paper (StandardProtocols)

Oct MiFID Readiness Survey

Nov FSA “Planning for MiFID” paper

IMA “What MiFID Means forInvestment Managers” paper

MiFID Connect formed

Dec HM Treasury “MiFID ConsultationPaper”

JWG White Paper (Reference Data)

JWG White Paper (Post-trade publication)


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MiFID to come – 2006

Feb EC implementing measures –Final Level 2 text

Level 3:

Q1/Q2 FSA Consultation

May FSA Conference on MiFIDimplementation

May/Jun ESC votes and signs off Level 2

Q3/Q4 FSA Consultation

Jan-Dec JWG workshops

MiFID ConnectImplementation courses &Specialist workshops

FSA Handbook revisions

Mid-year MiFID Connect SurvivalGuide (part 1)


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MiFID to come – 2007

31 Jan Member states required to haveimplementing measures in place

1 Nov MiFID comes into effectInvestment Firms required toimplement

Level 4:….

May Presumed industry-widetesting commences

Mid-year MiFID Connect SurvivalGuide (part 2)


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MiFID to go

From today:

< 21 months to compliance

< 15 months to prepare

The MiFID Challenge

Bob Fuller,

IT Director, IT Strategy

Dresdner Kleinwort Wasserstein &

Co-Chair MiFID JWG-IT

9th February 2006

11Bob Fuller 9 February 2006 Not for onward distribution without the written consent of the author

Commissioner McCreevy is very clear

London, 16/12/05 (LSE Speech) Today the EU (plus EEA/EFTA) has nearly 40 equity exchanges. Our main competitor, the US,

has effectively two - plus of course the futures and derivatives markets in Chicago. So economic and market logic would indicate rationalization in the EU is both necessary and inevitable

We believe for those prepared to adapt and to make the necessary preparations, the opportunities in this new landscape of open and competitive marketplaces will be enormous. However, the head in the sand MIFID ostriches will be seriously weakened

MiFID is not going to go away. The time to start preparing for it is now Real information sharing and cooperation between national supervisors Brussels, 30/11/05 (Société Universitaire Européenne de Recherches Financières) Investment in IT systems may well take up a bigger part of firms’ budgets The opportunities in this new landscape of open and hyper-competitive marketplaces will be

enormous The first-mover advantage will be all-important. And those investment firms that try to ignore

MiFID may well find themselves fatally weakened.” Brussels, October 2005 (Dialogue Magazine Q4) Developing common standards, which I regard as crucial to ensuring interoperability and

enabling real competition on a European level


Level 2 text is now out!!

The finalisation of the Level 2 text has been heavily delayed, from September originally but arrived on the 6th February.

This is a very difficult political process especially as we believe most of the key parts are still Regulation NOT Directive.

However HM Treasury have stated that they feel the final version signed by the European Parliament will differ from that published this week.


Regulation will change your business model – what are you doing about it?

Systematic Internalisation

Multilateral Trading

Facilities

ECNs ATFs

Regulatory reporting

Buy SideBuy SideBuy SideSell SideSell SideSell Side

Best Execution Best

Execution

AdvisorsRetail

Customers

Professional Investors /

EC

Conduct of Business

Exchanges

NOTE: There is no such text as Buy Side and Sell Side in MiFID!!!!


Its not just what it states in MiFID!

It is reasonable to expect that current significant players like exchanges will adapt their business model to compete early

Some current infrastructure models may not work across Europe, either through pricing, availability, IPR etc

New players will attempt to provide new ‘MiFID’ services to all players

Consolidation of Financial Services companies including exchanges should be expected.

‘Buy Side’ firms may act like ‘Sell Side’ and vice versa


IT will be challenged

People

Boxes & Wires

Intensified competition for limited “hybrid” IT professionals

Difficulty of hiring permanent staff

Consulting partnerships?

Flight to offshore labour pools / outsourcing to reduce costs?

Opportunities for players across the IT value chain

Demand will outstrip capacity and technical limitations in key areas (e.g. messaging, LANs/WANs)

Continued stress on overloaded data centres and BCM

New levels of dependency require real IT Infrastructure Library (ITIL) and 6 Sigma quality standards


Many of the challenges are common

Joined up business/ IT/ Compliance conversations quickly Commercial discussions

– Data vendors– Exchange– IT vendors– Infra vendors

Standards decisions Regulatory engagement (European Commission, CESR,

Member States) Migration principles and plan to maintain an orderly market

post level 2 European wide testing approach, spec and vendor IT Industry associations


JWG-IT Working with industry associations

ABI, APCIMS, FOA, ICMA, BBA, LIBA, IMA, ISDA

MiFID Connect

TBC

Other Regions

Business Model Cornerstones

IT Imperatives IT Operating Models

High Level Gap Assessment

Exchanges Market Data

IT Suppliers

Implementation Plan Test Monitor

ITB

usin

ess

Federated

Central

Focus


European implementation planning and tracking is complex

Implementing Article X

Interpretation(L1, L2 & L3)

Current practice

IT best practices

Issues

Plans

Business needs

Solutions

Technology imperatives

Commentary & Analysis

Cost & Time

• Business requirements by geography

• IT requirements cross geography

• Vendor assessment

• Migration strategy

• Plans

• Risk mitigation

• Metrics & measures

• Governance & stakeholder management

• Communications

Deliverables StatusRequirementsKey Issue


Regional engagement will be complex Specific MiFID Issues Systematic Internalisation Best Execution Equities ( by

instrument) Transaction Reporting Proof of Execution Venue Suitability Testing Client Order Handling Record Keeping Pre-Trade Transparency Conflict of Interest Management Client Assets Derivatives Information to Clients Common MiFID Issues Outsourcing Standards Market Data Changes MiFID Implementation Issues General legislation Implementation Planning Testing Planning and Execution Other External Factors e.g.

Exchange changes

UK DE FR ROE

European

European

NL

Time?


To understand the requirements we have been engaged across a broad spectrum

Industry Associations

LIBA ISDA

Professional Associations

Best Execution

Protocols

Reference Data

Real-timeMarket Data

TWISTSupply Community

Financial Institutions

Legislative/ Regulatory

CESR

EC

JWG-IT


In Summary: from the year 1513 Leading the introduction of a new order is hard:

– There is nothing more difficult to take in hand,– more perilous to conduct,– or more uncertain in its success

Because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new

This coolness arises partly from fear of the opponents, who have the laws on their side, and partly from the incredulity of men, who do not readily believe in new things until they have had a long experience of them

The Prince, Chapter VI Niccolo Machiavelli

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ASSET MANAGEMENT

MiFID: Red Alert or Red Herring?Summary

Pete Hudson, Linedata Services


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Time for Action

This is a corporate-wide challenge

Technology, Compliance & Business need to work together

Get out in front of the agenda and make it real for your firm

Get organised - plan and communicate like your business depends on it

Quantify the size, complexity and interdependencies

Engage across the industry and with suppliers

Communicate, communicate, communicate


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To Conclude…..

FSA “Planning for MiFID”, November 2005:

“…significant sections of our Handbook will need to be reworked…This will affect, to a greater or lesser extent, all firms carrying out investment business…”

“…even if your firm’s investment business is partly or wholly outside the scope of MiFID, this does not mean that you will be unaffected by our approach to its implementation…”

“…implementation changes in market structure…Firms that are well-prepared will be positioned to make the most of these changes…”

Commissioner McCreevy, February 2006:

“…firms should start preparing now for MiFID: there will be a first-mover advantage…”

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