www.sii.org.uk christopher bond msi senior adviser to sii on compliance operations p.i.f 2 february...
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www.sii.org.uk
Christopher Bond MSISenior Adviser to SII on Compliance
Operations P.I.F
2 February 2006
““““This [MiFID] proposal is a cornerstone of the Financial Services Action Plan.
If we want a true internal market in financial services, with all the
enormous benefits that will bring, we need investors large and small to be able to invest across borders easily
and with confidence
Fritz Bolkstein EU Internal Markets Commissioner on MiFID in November 2002 when the proposal was launched.
Scope of MiFID increased
e.g. Investment advice
Internal Organisation e.g. Conflicts of Interest
(separate slide)
MiFID Conduct of Business e.g. home country rules
(separate slide)
Regulated Markets and Alternative Trading Systems
e.g. MTFs
MiFID at a Glance
Which Firm Functions are Affected?
MiFID
Operations
e.g. trade reporting
I.T. Technology
e.g. data collection
Internal Audit
e.g. authority
Legal
e.g. Client Agreements Compliance
HR
e.g. Training
Senior Management
Front Office
e.g. Sales, Trading and Investment Management e.g. Conduct of Business
MiFID – IT/Operations Perspective
Account opening
eg new client classifications
Order execution and routing systems
Post trade reporting including new
products
5 year record keeping – 1 year phone
recording
Increased product scopeeg OTC Derivatives
Pre-trade price reporting for equities from S.I.s
and MTFs
Best Execution venue analysis and monitoring
Instrument data problem
eg ISIN contrast RIC
IT/Operations
NOTE: The Capital Requirements Directive preparation is at the same time.
New Requirements New Requirements
Commercial Opportunities Commercial Opportunities
Static Data
StaticData
• New client classificationseg divide Intermediate Customersbetween professional and retail clients
• Different order handling rules
• Full suitability test for advisory and managed clients
• Managed client expectations
• Smooth transition
• Use grandfathering where available
• Standard internal and external approachto identifying instruments
• Change instrument codes (RIC) v machine readable (ISIN/SEDOL/CUSIP)
• Algorhymic trading
• STP
Client Static Instrument Data
New Requirements New Requirements
Commercial Opportunities Commercial Opportunities
Price Reporting
Price Reporting
• Systematic Internalisers (SI’s)Collect and distribute pre-trade equity prices internally
• Publish unexecuted limit orders
• Commitment to deal limited to standard sizes in liquid securities
Analyse profit of individual traders, products and market segments
Pre trade price reporting Post trade price reporting
• Any uncompetitive prices or costs more transparent
• Better access to competitors’ prices and new liquid markets
• Possible charges for pre-trade information
• Post trade price collection and external reporting (including for new products)
• Provide for deferred reporting of largest trades
• Consider speed of reporting
Booking Names
Some of the New Products New Countries
Cash settledExotic
Commodity Derivatives
Financial Contracts for
Difference
Credit DefaultSwaps and
CDOs
Units in Collective Investment
undertakings
Money MarketInstruments
Cash settled Exchange Traded
CommodityDerivatives
Commodity Derivatives
settled through clearing house –
includes OTC
Multi Market Single Format27 EU Countries3 EEA Countries
Not multi format domestic market
Best Execution
OpportunitiesNew Requirements
Best Execution
New test including full cost, speed, probability of execution and settlement (including for
professional clients)
Receive and distribute internally information received from other
sources
Breakdown of trading cost to achieve and
monitor best execution
Order routing/algorhymic trading
Access to new liquid execution
venues
Gain/protect market share
MiFID for Investment Managers – Relations with Customers
Retail Customer Agreements Reporting to Retail Customers
Frequency eg quarterly
Best Executionresponsibility
Transaction execution details
eg venue
Breakdown ofcommission fees and
charges
Information on Corporate Actions
No prescription on content or frequency
for professional clients
Reporting percentage of loss
Objectives and permitted levels
of risk
Method and frequency of valuations
Permitted investments
including limits
Investment Management
Record Keeping
Record Keeping
Five years for record keeping
1 year phone records
Website Reporting Accessibility of information
NewRequirements
CommercialOpportunities
MiFID-Related CPs and their planned publications dates
Planning for MiFID - overview November 2005
Treasury authorisation consultancy document December 2005
Main MiFID CP April 2006
System and controls CP April 2006
Financial promotions CP May 2006
MiFID follow-up CP H2 2006
Non-scope MiFID-dependent CPs
Disclosure Q1 2006
Simplifying the retail COB regime Q2 2006
Standards for non-MiFID scope wholesale firms H2 2006
Systems and controls for non-MiFID, non-CRD firms H2 2006
Expected deadlines
MiFID implementing rules and guidance made 31 January 2007
Firms to be complying with MiFID requirements 1 November 2007
The Competitive Position of London as a Global Financial Centre “ “ More than 90% of respondents viewed availability of skilled personnel as Very or Critically Important. London and New York both scored highly on the availability of skilled staff, with 98% of respondents giving a rating of Good or Excellent. London appears to have a marginal advantage with an Excellent rating of 75%,compared with 66% in New York.””
Source: Report of Corporation of London of November 2005
Cost per Person
Trades processed per
Person
Estimated Person Cost per Trade
100% Primary Location $128,312 41,226 $3.11 50% Primary / 50% Secondary $77,851 23,267 $3.35 10% Primary / 45% Secondary / 45% Tertiary
$58,607 18,394 $3.19
Benefit from groupknowledge
Establish Firm wide
Central team
Knowledge“Tsars” in each
department
Communicateto all staff
Alter Firms’strategy to take
opportunities
Involve Senior
Management
Revise internal procedures
Budget for outside costs
eg IT, Compliance,
Legal
How Firms Address MiFID
What is the Regulatory Update?
Members’
new benefit
Coded for individual sector application
Recent and future changes and trends in UK
financial regulation
Hard and soft copyFor senior and
junior professionals
3 levels of
information
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