MiFID Using Regulatory Change to Create a Competitive Advantage

Transcription

1 MiFID Using Regulatory Change to Create a Competitive Advantage Philip Filleul MiFID Program Manager, Sun Microsystems Martin Gibbon Head of Risk, SAS UK 22 nd May 2007

2 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

3 MiFID Objectives Increase market efficiency through increased transparency and competition Markets in Financial Instruments Directive MiFID Objectives Provide protection for the retail investor A common regulatory framework across Europe

4 Who is affected? EU and EEA countries + Iceland, Liechtenstein, Norway Non EU countries If a bank wants a physical presence in an EU country OR cross border trading Bilateral agreement with relevant regulator Both sell side and buy side Buy side = asset/fund managers, hedge funds, private wealth managers Sell side = banks who supply financial instruments

5 MiFID Requirements Client Classification Pre-trade & Post-trade transparency (Shares) Best Execution Clients to be classified as Retail, Professional or Eligible Counterparty Clients can be transferred simply to new MiFID categories Suitability and Appropriateness questions to be asked of retail ie attitude to risk, degree of financial education, familiarity to trading different instruments Firms required to publish OTC trades immediately on execution. Firms that are Systematic Internalisers in liquid stocks must publish quotes in those stocks. Mechanism for publication must meet criteria prescribed in MiFID Level 2 Opportunity in publication to reduce costs, earn revenue &/or differentiate their execution capabilities. Applies to almost all asset classes. Applies to executing client order, NOT executing after a quote (dealer markets) Firms need to specify an execution policy that delivers the best possible result in executing client orders. Need to validate compliance with their policy and, periodically, that its application delivers the best possible result.

6 MiFID Requirements Transaction Reporting Conduct of Business Applies to almost all asset classes T+1 reporting to Competent Authority Home/Host rules apply Destination varies by location of HQ, branch and counterparty Fields reported vary by CA eg Germany BAFin Firms required to publish OTC trades immediately on execution. Firms that are Systematic Internalisers in liquid stocks must publish quotes in those stocks. Mechanism for publication must meet criteria prescribed in MiFID Level 2 Opportunity in publication to reduce costs, earn revenue &/or differentiate their execution capabilities. Records Keeping Order related Client related Compliance related Trade related Best execution related

7 MiFID Timeline 01 Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Nov 2007 MiFID Level 1 passed by European Parliament Extended Consultation on implementation measures MiFID Level 2 Implementation measures finalised and published by the Commission Deadline for Transposition of MiFID into local law 9 months allowed for implementation Deadline for MiFID implementation

8 State of the market Dates start date is moving, end date is not Drives the need for rapid implementation vs strategic Smaller firms Head in the Sand mentality, excuses to not start. Likely mop up in 08 Regulators will not enforce in November 07 All firms will be visited within 2 years Most geographies are late to transpose (Jan 07) Some major issues still outstanding pending CESR Level 3 Home Host rules and Transaction Reporting Difficulty in fixing business requirements

9 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

10 Differentiating Winners and Losers Best Execution Client Classification Trade Reporting Records Keeping Most liquidity pools, and lowest costs -Latency and scale Assess new venues Trade recreation Keep or enhance client protection Shared client approach with KYC Managed Onboarding process Integration with front office Rule based reporting Shared reporting frame Lower cost profile and scale - Tape and disk combination Rapid search across different data sources/lobs Security audit, encryption Fewer venues Just follow policy Reduced protection Multiple client approaches Fragmented process Multiple changes to bespoke reporting systems High cost disk only No common retrieval

11 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

12 Business Intelligence for MiFID

13 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

14 Rule-based Transaction Reporting Institution to Regulator(s) new instruments in scope, e.g. contracts for difference, commodities CESR level 3 harmonisation is ongoing issues re: home/host requirement may not be resolved by November 2007 leading institutions planning for greater complexity, e.g. reference data and mapping - head office, branch where decision to trade, counterparty HQ transaction data and rule interpretation - Germany may significantly extend reporting template design

15 Rule-based Transaction Reporting Regulator to Regulator options include many to many, without intelligence one, with intelligence at the hub many, with intelligence SAS rule-based analytics, Data Integration, Storage and Business Intelligence means flexible, scaleable and robust solutions Competitive advantage through innovation

16 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

17 Best Execution Buy-side Perspective trading sophistication, e.g. OTC derivatives, exotics DMA (broker by-pass) and algorithmic trading pro-active client service - including improved reporting and dashboards fungibility between stocks reduced opportunity cost best execution lower costs - reduced spreads and commissions cost transparency better value for money speed of execution

18 Best Execution Sell-side Perspective volume business increased trading volumes e.g. from hedge funds, asset managers reduced spreads, commissions and sell-side profits per trade value business increased sophistication of value business, e.g. OTC derivatives, exotics erosion of deep client relationships changes in market structures increase in quote driven market, smart order routing, DMA and algo trading FX and FI catching up with equities dark pools of liquidity

19 Best Execution The Innovation Opportunity capture, analyse and report on volume and value business know your profitable clients and develop stickiness ready yourself for: a rapid raising of the Best Execution bar the ability to trade on new exchanges and venues large scale data storage, analytics and reporting SAS rule-based analytics, Data Integration, Storage and Business Intelligence means flexible, scaleable and robust solutions Competitive advantage through innovation

20 BI for MiFID, with Industry Solution

21 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

22 Examples of Why Trades are Monitored rogue trader breaches the authorised trading limit of the organisation and continues trading hides the breach from management falsely records or conceals unauthorised trades from management front running trades churning accounts cherry picking

23 Focus on Partners Detica, FSA win Financial Services Authority (FSA) regulates financial services industry in the UK currently detects and investigates market abuse across UK securities collects sensitive post trade data from sources including debt and equity related financial instruments e.g. contracts for difference, bonds, spread bets and equities new SAS solution to provide cross exchange real-time alerting and comprehensive analytical functionality to proactively detect and survey market abuse (real-time and historically)

24 Focus on Partners Detica, FSA win MiFID introduces transaction reporting for commodities and interest rate derivatives SAS solution will in addition: enable receipt of transaction reports from commodity exchanges. collect, store and transmit reports to other competent authorities perform specific market policy calculations lead consultants to the FSA: Detica

25 Focus on Partners - Sun

26 Focus on Partners - Sun

27 Why SAS?

28 Agenda What is MiFID? What might differentiate winners and losers? Business intelligence for MiFID Rule Based Reporting Best Execution Trade Monitoring Introducing the Open MiFID Alliance

29 What is the Open MiFID Alliance? Six major players combining forces Bringing an end-to-end MiFID technology chain to the market: Synergistic approach rather than single-vendor approach Post gap analysis perspective Best of breed technology for the key MiFID topics Pre-validated integration points between the technical components Integration services for easier implementation dependent on the geography

30 A different approach to MiFID The Alliance provides customers with: Practical rather than theoretical solutions (technical chain post gap analysis) Broad industry expertise (participants technology vastly present in trading space) Peace of mind (pre-validated MiFID chain to achieve compliance by November 1 st ) Leverage (build on initial MiFID investments and turn them into competitive advantage) Experience (participants already engaged with major financial institutions in MiFID work)

31 Scope of the Open MiFID Alliance MTF MTFRegulation Multi-lateral trading facilities (such as electronic communication networks and automated trading systems) will be included in the scope of EU regulation, comparable to national exchanges Record RecordKeeping Firms have to adhere to regulations concerning confirmations and periodic statements, transaction reporting and record keeping Investor InvestorClassification At client take-on: classify by retail, professional or eligible counterparty; ask identity verification/kyc, suitability and appropriateness questions about a client s financial education, experience and risk attitude. Interface to CRM systems MiFID Regulatory Reporting Firms must publish trade data for most financial instruments to a competent authority. They must provide adequate information and reporting on transactions in a clearly comprehensible form, including details of costs. Best BestExecution Firms shall demonstrate that they have undertaken best execution on their clients behalf and shall maintain records to prove it. Pre/Post Pre/Post Transparency Firms must publish firm quotes and prices in real-time and in any event within three minutes.

32 Open MiFID Alliance Component Architecture Market data feeds Credit Risk Client and relationship banker interaction FIX orders Execution policies GISSING Pre- & Post-trade transparency Market data aggregator / Trade data monitor edge IPK ULLINK ECN Front Office CRM KYC, client classification and suitability Best execution CONNECTIVITY (Execution venues) Other trade sources (FI, FX, Derivatives) SAS Transaction reporting Transaction cost analysis Execution perfomance Venue analysis and voice MOBIUS Archive & records management Trade recreation Reports to competent authority Sun technologies

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