After EMIR, Basel III and Dodd Frank, MiFID II is now on the horizon. Are you keeping up with the latest regulatory developments in the market?

Alarmed by the impact of the latest financial crisis, regulators globally have released a set of new regulations. While most financial institutions are already working diligently on the implementation of EMIR, Basel III and Dodd Frank, the change in the EU Council presidency to Ireland and the current consultations around MiFID II give further incentives to have a closer look at the challenges that the revision of the Markets in Financial Instruments Directive (MiFID) brings to market participants.

The final implementation challenges for Dodd Frank, EMIR and Basel III are still coming, but now is the time to prepare for MiFID II

The original MiFID legislation was introduced in 2007. Since then, a number of changes to the marketplace have taken place, including the rise of high-frequency trading. The financial crisis has shown that transparency is key to ensuring financial market stability, therefore a review of this critical piece of legislation was ordered and is now in the final stages of the rule-making process.

While its impact concerns all areas of the securities market and organisations involved in this space (e.g. sell-side and buy-side banks, corporate end-users, trading and post-trade venues, CCPs, CSDs) the question that should be asked is not “Will I be impacted?” but rather “How do I proceed?”

Better be involved before you get involved

Being a complex piece of regulation, MiFiD II requires a thorough analysis to identify the impact it will have on financial services firms. While the regulation affects the full value chain, the main focus can be broken down to the following areas:

• Market Structure: Introduction of Organised Trading Facilities (OTFs) and regulatory requirements for Multilateral Trading Facilities (MTFs)
• Trade Automation: Introduction of tighter rules governing the use of high frequency and algorithmic trading
• OTC Derivatives and Commodities: Extension to further products not yet part of MiFID as well as stricter regulation of commodities and corresponding derivatives
• Transparency: New requirements on transaction reporting and data consolidation as well as on pre- and post-trade transparency
• Investor Protection: Strengthening client protection and information disclosure
• Organisational Requirements:  Strengthening customer rights and revision of sales staff incentives (inducements)

Quick and decisive action may yield the chance to realise synergies from the regulation and find new business opportunities

Adapting to the required changes of MiFID II will no doubt be costly and take a huge effort but there is light at the end of the tunnel. A smart and structured approach will enable institutions to leverage solutions that have already been introduced as part of other regulatory efforts.

With the start of this new blog series, Capco will report selected developments and challenges regarding MiFID II, and will run a forum for discussion. In regular releases we plan to post updates on this topic, diving deeper into certain parts of the regulation and, thus, probe our understanding of the challenges ahead.

Blog authored Florian Zimmermann, Nicky Heber and Tom Riesack