A1258690737IExFX

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MiFiD and its impact on Financial Information
Chris Pickles
Manager, Industry Relations
30 November 2004
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MiFiD Markets in Financial Instruments Directive

• Came into force 30 April 2004
• Must be implemented by all 25 EU member states by
  30 April 2006
• Impacts all asset classes except for FX
• Applies to all investment firms in the EU
• Impact for financial information - mainly in
  respect of shares which are admitted to trading
  on a regulated market that are traded off a
  regulated market

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MiFiD new terminology

• MTF
• multilateral trading facility (eg ECN, ATS) that
  is not a Regulated Market (exchange)
• Comitology
• the involvement of CESR (Committee of European
  Securities Regulators)
• Deadline for first responses to CESR 4 October
  2004
• Deadline for second responses to CESR 21 January
  2005

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Art.13 (4) (5) - Organisational Requirements

• An investment firm shall take reasonable steps
  to ensure continuity and regularity in the
  performance of investment services and
  activities.
• An investment firm shall haveeffective control
  and safeguard arrangements for information
  processing systems.
• (G-30 recommendation 12 Ensure effective
  business continuity and disaster recovery
  planning)
• CESR to provide technical advice to EC by 31
  January 2005 regarding the minimum basic criteria
  to ensure that control and safeguard measures for
  information processing systems are considered as
  effective.

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Art.13 (4) (5) Draft CESR Advice

• Arrangements, regularly tested and updated, to
  ensure that it can continue to function and meet
  its regulatory obligations in the event of an
  unplanned severe business interruption.
• identify critical information systemssuch as IT
  infrastructure, telecommunications and power
  supply
• Does the industry need a best-practice
  recommendation that regulators can use as a
  benchmark for compliance?

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Art.21 Most favourable terms to client

• The order execution policy shall includeat
  least those venues that enable the investment
  firm to obtain on a consistent basis the best
  possible result for the execution of client
  orders.
• they shall assess, on a regular basis, whether
  the execution venues included in the order
  execution policy provide for the best possible
  result for the client
• If internalising within an investment firm is a
  venue, how will internalisers make other
  investment firms aware of their quotes and prices?

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Art.27 Obligation to make public firm quotes

• require systematic internalisers in shares to
  publish a firm quote in those shares admitted to
  trading on a regulated market
• Systematic internalisers shall make public their
  quotes on a regular and continuous basis during
  normal trading hours.
• The quote shall be made public in a manner which
  is easily accessible to other market participants
  on a reasonable commercial basis.
• Possibilities
• via a regulated market
• via a third party
• via proprietary arrangements

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Art.28 Post-trade disclosure by investment firms

• require investment firms whichconclude
  transactions in shares admitted to trading on a
  regulated market outside a regulated market or
  MTF, to make public the volume and price of those
  transactions and the time at which they were
  concluded.
• This information shall be made public as close
  to real-time as possible, on a reasonable
  commercial basis, and in a manner which is easily
  accessible to other market participants.
• Possibilities
• via a regulated market
• via a third party
• via proprietary arrangements
• CESR advice investment firms to make all data
  available for two weeks after trade

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Art.29 Pre-trade transparency requirements for
MTFs

• make public current bid and offer prices and
  the depth of trading interests at these priceson
  reasonable commercial terms and on a continuous
  basis during normal trading hours.

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Art.30 Post-trade transparency requirements for
MTFs

• make public the price, volume and time of the
  transactions executed under its system
• details of all such transactions be made public,
  on a reasonable commercial basis, as close to
  real-time as possible.

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Articles 27/28/29/30 Some issues

• How do I get a complete market overview?
• How do I publish my quotes prices?
• Data standard(s)
• Source identification
• Standardising of securities identifiers
• on reasonable commercial terms

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Articles 27/28/29/30 How do I get a complete
market overview?

• Data vendors and exchanges (as public companies
  and service providers) are expected to compete
  against each other to gather and re-distribute
  this data
• As these vendors compete against each other, they
  are unlikely to share this data with each other
• Any single vendor is unlikely to be able to
  provide all of this information in a consolidated
  form to investment firms and asset managers
• Investment firms and asset managers will have to
• either buy data from multiple vendors in order to
  consolidate it themselves
• implications for IT systems and budgets
• or have an incomplete view of the market
• implications for competitiveness, profitability
  and compliance

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Articles 27/28/29/30 How do I publish my quotes
prices?

• Data vendors dont collect off-exchange equity
  prices from investment firms today
• Electronic exchanges dont have systems in place
  to collect quotes prices for all off-exchange
  trades of shares that they admit for trading
• Electronic exchanges dont have systems in place
  to collect quotes prices for all off-exchange
  trades of shares that they dont admit for
  trading
• CESR asks if publishing quotes solely on the
  firms own web site is sufficient
• Investment firms dont have systems in place to
  publish their equity quotes prices
• The deadline for compliance for all investment
  firms in the EU is 30 April 2006
• CESR Question 13.9
• Should CESR initiate work, in collaboration with
  the industry and data publishers, to determine
  how best to ensure that post-trade transparency
  data be disseminated on a pan-European basis?

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Articles 27/28/29/30 Data standard(s)

• CESR notes that in order to be consolidatable
  the information disclosed by RMs, MTFs and firms
  need to fulfil certain criteria. Ideally it
  should follow (one) generally agreed data
  standard(s). Establishing such standards is
  supported by CESR but it is not seen primarily as
  the regulators role
• What data standard(s) should the industry adopt?

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Articles 27/28/29/30 Source identification

• The following information shall be made public
  trade by trade for every trade
• Market or other source identification
• Security identifier
• Date time of trade
• Volume
• Price per share..

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Articles 27/28/29/30 Standardising of security
identifiers

• CESR Question 13.7
• Should the identifier of a security be
  harmonised and if so to what extent? What should
  be the applicable standard (ISIN code, other)?

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Articles 27/28/29/30 on reasonable commercial
terms

• Investment firms will incur costs in order to
  comply with MiFiD
• Some (but not all) of these costs will be IT
  costs
• Investment firms are allowed to make their quotes
  prices available on a reasonable commercial
  basis
• Is this a potential new revenue stream for
  investment firms?
• Could it be used to offset related IT costs?
• Taking that exchanges and data vendors can charge
  millions for their market data, what is the
  market value of an investment firms market data?
• Is this a potential new cost of business for each
  data vendor?

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MiFiD by 30 April 2006

• 2nd Responses to CESR by 21 January 2005
• New internal systems to implement for data
  publishing and data collection
• External network considerations
• Commercial decisions
• Industry involvement
• When do you start?

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MiFiD further information

• Original copy of MiFiD (Directive 2004/39/EC)
• http//www.europa.int/eur-lex/en/archive/2004/l_14
  520040430en.html
• CESR advice (CESR/04-261b and CESR/04-562)
• www.cesr-eu.org/ - under Consultations
• Chris Pickles
• Manager, Industry Relations
• Radianz
• chris.pickles_at_radianz.com
• tel [phone]
• www.radianz.com