PJ DiGiammarino

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 PJ DiGiammarino
 PJ DiGiammarino is founder and CEO
 of JWG-IT Ltd and former COO, IT,
 Barclays Capital. He works with top
 tier financial services firms to define
 and implement IT strategies. Prior to
 setting up the JWG-IT think tank, he
 co-chaired the IT Subject Group of
 the Markets in Financial Instruments
 Directive (MiFID) Joint Working
 Group. He has also served in a
 variety of operational roles; prior to
 Barclays Capital, he spent 14 years in
 management consultancy with
 EDS/A T Kearney, Booz Allen &
 Hamilton and McKinsey.

24     Financial i · Q2 · 2006
The MiFID Joint Working Group set the framework – and now one of its
stalwarts, PJ DiGiammarino, believes it is time to take the next step. As the date
for transposition looms, he explains how his new think tank will help turn
compliance theory into practice.

The ‘nuts and
bolts’ of MiFID
You’ve been involved with the MiFID Joint Working          of most firms’ agenda. The working group has put it at
Group since its inception. Why have you left to set up     the top so it is a great success story. In terms of
JWG-IT?                                                    membership, it went from 100 people initially to more
                                                           than 500 registered members. The IT subject group
I feel that the MiFID Joint Working Group has done         drew some of the biggest crowds within the Joint
well to reach agreement on standards and protocols,        Working Group. At a meeting of the IT subject group
and initiate and contribute to debate on the policy        last October, there were over 100 attendees.
level. However, I believe that the challenge now, as we
draw closer and closer to the transposition deadline, is   It was in response to this overwhelming demand that I
to move the agenda from debating high-level                decided to set up a think tank focused on the
implementation issues to articulating common               implementation of MiFID. What people were missing
solutions. This is why I have now established JWG-IT,      was the detailed information on how to go from ‘What
a think tank led by the sell side, buy side and            is MiFID?’, which is what the Joint Working Group
exchanges, which aims to help firms get to where they      discussed, to ‘What does it mean to me and how do I
need to be in preparation for MiFID.                       implement it?’, which is where JWG-IT is concentrated.

As my new model is an evolution of the joint working       Unlike the MiFID Joint Working Group, JWG-IT is not
group approach, it uses the name JWG-IT. There is an       focused at the policymaking level. It is more focused
enormous opportunity to leverage the “beach-head”          on tactics and practical issues around complying with
created by the Joint Working Group’s small volunteer       MiFID – the nuts and bolts, if you like. The aim is to
force. Because it is a voluntary body and because it is    provide a reasonable level of detail so that firms can
focused on policy, it did not have the resources to        write a spec for implementing MiFID within their own
establish leadership on how to practically manage MiFID.   organisation. There are still no common definitions of
JWG-IT was established to fill this gap and to provide a   what the key stages of MiFID implementation are, so
forum where MiFID implementation can be discussed in a     we hope to come up with common ways in which
neutral manner by firms and suppliers alike.               firms can ‘stay out of jail’. JWG-IT’s objective is to
                                                           establish common industry practices for implementing
My members are currently telling me that they are          MiFID. Although a firm’s strategy around MiFID and
uncomfortable with this type of agenda being discussed     what it means for their organisation will differ from
in some kind of monthly, generalist meeting. What they     one company to the next, the end point is the same
want is their ‘run-the-bank’ personnel and suppliers to    and there are a limited number of transition options for
engage in an appropriate manner.                           most companies.

Did the MiFID Joint Working Group fulfil its               What are some of the common issues firms face
objectives?                                                around MiFID?

When the group first formed, MiFID wasn’t on the top       A good example of what the membership is telling

                                                                                                 2006 · Q2 · Financial i   25

The challenge now is to move the agenda from debating high-
level implementation issues to articulating common solutions.                                                                 ’’
JWG-IT is transaction reporting. MiFID                                   change programme of this magnitude.
requires a lot of new detail to be                                       The Commission is, however correct in
published to the relevant competent                                      pointing out that those that are not
authority by T+1. Under MiFID there is                                   considering their moves now could be
no distinction for buy and sell side, so                                 fatally weakened.
either could meet the requirement. Today
the sell side reports for the buy side but                               Is there a willingness on the banks’
a detailed conversation is required before                               part to collaborate around MiFID, or
the future operating model is cast in                                    do they view it as a competitive issue?
stone. There could well be situations
where buy-side firms will need to start                                    Banks can still compete but in the long
reporting their own transactions.                          run it is better to collaborate around developing
                                                           common IT operating models, which can help the
What are the implications of MiFID for market data         industry reduce costs. Overall, capital markets firms
volumes?                                                   spend greater amounts on technology than oil
                                                           companies. Their IT budgets are already the size of
It is reasonable to model scenarios where you could        large companies in their own right and firms are
have between 50 to 100 new sources of prices and the       spending an ever-larger percentage of their back-office
European Commission has now confirmed that it              budgets on technology. MiFID will only make it worse.
expects 500+ shares to fall within the definition of       In order to free up budget, costs must be reduced by
liquid instruments for systematic internalisation under    collaborating and sharing the burden in areas that have
MiFID. That means market data volumes will increase        not been shared to date.
fairly dramatically on a per-second basis for systematic
internalisers (SIs). In a normal market the SIs can        What about those banks that have outsourced their
handle those volumes, but if there is an interruption,     front or back office – what does MiFID mean for
you could get enormous spikes.                             them?

Essentially, what is needed is a MiFID roadmap, which      MiFID is very prescriptive on the way that you need to
allows firms to make the journey from high-level           outsource and the levels of responsibility that the
assumptions through to detailed MiFID implementation       outsourcers have. There is a new definition of who is a
specifications, and, finally, an implementation plan for   ‘relevant person’, so lawyers tell me that the controls in
getting it done.                                           place for employees today – for example, monitoring
                                                           their personal investment transactions – could well be
How well advanced are sell-side firms in terms of          extended to outsourced employees in the future.
their preparations for MiFID?
                                                           How can firms participate in JWG-IT?
The large sell-side firms, particularly US-based firms,
have generally thought about what MiFID means for          Membership will be based on an annual subscription
their company’s strategy. On the Continent, they are       model, with different levels of membership (gold, silver,
still talking about MiFID, and some are having those       bronze) that entitle firms to access workshops and an à
conversations for the first time while they wait for the   la carte menu of services. There are three services that
level 2 detail of MiFID to be finalised. I don’t see one   we provide: workshops, online collaboration around
approach as necessarily preferable. The US mentality       specific MiFID topics, as well as analysis and alerts to
lends itself to a more forward-planning-based approach     the relevant members. We are holding 12 slots for IT
while the Mediterranean approach of waiting until the      suppliers that want to advocate our think tank model
last minute and making a ‘strategic move’ is more          and help the ‘grass roots’ nature of the fundraising by
culturally desirable. There is no one way to plan for a    putting in their first two years’ membership up front. //

                                                                                                    2006 · Q2 · Financial i   27