Chris Pickles by liaoqinmei

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									MiFiD and its impact on Financial Information




                                          Chris Pickles
                              Manager, Industry Relations




                                       30 November 2004
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 have…effective 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 systems…such 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 include…at 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 which…conclude 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
  prices…on 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.”




 9
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”




 10
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




 11
Articles 27/28/29/30 – How do I publish my quotes & prices?



 Data vendors don’t collect off-exchange equity prices from investment firms today
 Electronic exchanges don’t have systems in place to collect quotes & prices for all off-
  exchange trades of shares that they admit for trading
 Electronic exchanges don’t have systems in place to collect quotes & prices for all off-
  exchange trades of shares that they don’t admit for trading
 CESR asks if publishing quotes solely on the firm’s own web site is sufficient
 Investment firms don’t 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?”




 12
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 regulator’s role…”
 What data standard(s) should the industry adopt?




 13
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…..”




 14
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)?”




15
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 firm’s market data?
 Is this a potential new cost of business for each data vendor?




 16
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?




 17
MiFiD – further information


 Original copy of MiFiD (Directive 2004/39/EC)
      – http://www.europa.int/eur-lex/en/archive/2004/l_14520040430en.html
 CESR advice (CESR/04-261b and CESR/04-562)
      – www.cesr-eu.org/ - under “Consultations”




                                                           Chris Pickles
                                                           Manager, Industry Relations
                                                           Radianz
                                                           chris.pickles@radianz.com
                                                           tel: +44 (0)7775 768172
                                                           www.radianz.com



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