MIFID PREPARATION AND UNDERSTANDING (Sept 2016)
Attending a Webinar the other day it was concerning that the consultant who was presenting his views around necessary preparation for the onset of MiFID was still making assertions around the regulation that were two years out of date and factually incorrect.
Whilst the details of establishing a MTF, OTF and Systematic Internaliser will probably never be seen as straightforward, the higher level approach of what the salient differences are between them should be well understood by now. If a firm were to listen to some of those old views they may be under the impression that they can somehow choose whether they wish to operate a OTF or a Systematic Internaliser as if they were somehow the same animal. That is without even beginning to get into the details of thresholds and how banks need to be aware that it is NOT going to be only the top 10 institutions who have to operate a SI.
If one takes a dash of regional specialisation, adds a pinch of a forward curve non-standard dates that a client has requested and then stir this together with the SI rules around illiquid instruments - there will be a good few (meaning many) banks that cross the threshold for at least one instrument. Given that the period's grace for complying wth the SI regime is only 2 months, a firm really should be considering how to establish a SI now. Just ask your IT department how long it will take to develop that infrastructure (think: transparent and objective rules around client pricing, using same price for multiple client trades simultaneously, pre-trade transparency, different reporting rules and record keeping for starters) and they may well say something around 'non-trivial'... And if you haven't already encountered this phrase, it means 'a significant challenge'!
Rules for MiFID preparation:
1. Engage with your legal advisors and get the up to date rules and interpretations
2. Appoint a specialist to manage your preparation, development and disparate teams (and this does not mean some spare body you have sitting around who seems to know a few buzz words around MiFID!)
3. Prioritise this development work above the 'nice-to-haves' - and be brutal in your choices to make sure this happens
4. Don't wait to start - if you are not already well into this programme, there is already a high risk of non-compliance come 2018!