230 days to the first of November, 2007.

23o days to November 1st, and that includes weekends, bank holidays, summer holidays, etc. I wonder why nobody is in a hurry ?

P J Di Giammarino of the leading city technology think tank JWG IT (see their website at http://www.jwg-it.eu and download their roadmap to implementation document) compares the current situation to the early stages of a tsunami, when the sea 'withdraws' from the beach before the gigantic wave hits the shores with devastating effects.

The FSA has already sent out several strong messages that they will tolerate 'delays' but not lack of compliance. In other words, you need to have a MiFID implementation plan and provide supportive evidence that you are following it (rather than something that was put together at the last minute to prepare for a 'conversation' with the FSA).

In a couple of years, once the whole of the EU will be MiFID compliant the financial world will be different. MiFID changes go beyond a new trading report. Some of the most interesting changes will be :

1) Organisation, there are specific requirements as to where the head of Compliance has to be in an organisation chart; also, how many company have a 'risk mitigation' role?

2) Multiple trading venues. This will change the way you source market data and how you present them to the front office. MTFs (Multiple Trading Facilities) will increase in the near future, some larger institution may even create a role that monitors the market and looks into expanding the number of trading venues and how best execution policy will change to accomodate new trading venues.

3) Client classification. This could almost be done by an external agent, a lot of the criteria are attributes of the client rather than the relationship between client and financial company (e.g. information derived from the balance sheet). Whilst it is conceivable that a client may 'opt up' from retail status with some institutions and not with others, the starting point will be the same. If that is true for different institutions, it is even more true for different departments within the same institution. An interesting benefit of this will be a faster on boarding process of a client that already has some business relationship with the company. If any advisory service is provided to a client, the classification is also very important for 'suitability and accountability purposes' and will definitely influence best execution for that specific client.

4) Outsourced services. Some things in the relationship between provider of outsourced services and the client will have to change, it will not be enough to provide results. The client should be able to monitor how these services are performed. (It could be argued that if you outsource back office, your best execution policy will also affect the company that provides your back office service)

5) Expanded scope. Hedge fund, commodity brokers, investment research companies and others will have to comply with MiFID even if they may have been outside the scope of the Investment Service Directive. This will affect the way they operate and the way they structure their companies.

6) Regulators. At the moment, every company operating in London (for instance) is registered and regulated by the FSA. Once all the jurisdisctions are MiFID compliants and all the financial institutions will be passported, a trader moving from Deutsche Bank in London (which will have the German regulator as the 'home regulator') to Ing-Barings in London (a company that will be regulated by the Dutch regulator) will actually change regulator and may change some of the rules. This implies a continuous training programme for new hires and will create interesting consequences in the recruitment market.

And there is more. All these changes will take longer to implement than righting the code for the new trading report. Changing policies, organisations, and overall processes takes longer than changing code.

So... 230 days to November 1st. Are you still mesmerised by the sea 'withdrawing from the beach' or have you started running ?

Are you pulling up your SOX on MiFID ?

Once a company is MiFID compliant, they will be able to operate throughout the European Economic Area (EU plus Switzerland, Norway, Iceland, Liechtenstein, etc.) with one main regulator (**). The intention of the EU commission was to stimulate and facilitate the creation of a single market for financial services.

Meanwhile on the other side of the Atlantic there is a very large single market for financial product, the US of A. Companies operating in that market have to comply with Sarbanes Oxley regulations (SOX), this applies to all companies operating in the US irrespective of where their headquarter is based.

Therefore both US companies operating in Europe and European companies with an interest in the US have to look at the interaction between MiFID and SOX, since they will have to comply with both.

A quick look at Sarbanes Oxley highlightes two areas of 'joint compliance' plus the audit trail and the storage of information.

Both regulations have conflict of interests rules. They are not aimed at the same thing but they have to live happily together, this is more work for the legal eagles.

Investment Research is another common area, Sarbanes Oxley title V "Analyst conflicts of interest" needs to be considered when looking at Investment Research under MiFID and may ultimately have an impact in the 'suitability and accountability' section of MiFID.

MiFID impacts the audit trail and therefore implies making sure that any changes to it wll not have a negative impact on SOX compliance

MiFID has its own requirements to store information, although there is no indication of potential conflicts with long term storage requirements under SOX one should check before implementation starts.

Overall, this is just something else to consider on your way to MiFID implementation. By the way, if you are within the jurisdiction of the FSA you have less than 8 months !

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(**) This of course implies overall compliance with MiFID. There are only few jurisdictions within the EU that have met the first deadline for the translation of EU directives in their jurisdiction.

Are we missing the point ?

I had several conversation about MiFID with compliance people in the past few weeks and I sometimes wonder why the experts are the only ones who seem to be alarmed that there are only 167 working days to November 1st. A lot of compliance people still have a wait and see attitude.

Do they know anything I don't ?

MiFID compliance is predominantly procedural rather than creating reports and algorythms, changing the way people work takes longer than changing software. Yes, there a lot things that are still uncomfortably vague but some concepts are quite clear and need to be addressed in a way that is appropriate for the organisation, for the specific financial instrument and for the specific client.

For instance the concepts of suitable and appropriate advice may still not be exactly crystal clear but they do depend on the classification of the client and the specific financial instrument. You may need legal advice after you have defined your criteria behind suitability and appropriateness but you have to define the policy first.

Another example is the concept of best execution. We now know that is more than best value, but we also know that the whole policy will be linked with the trading venue chosen and therefore the availability of information provided by this trading venue. Therefore the little we have established so far is already tied to two things : a reasonable effort in working with more than one trading venue, sourcing and distributing the relevant market data and establishing policies and procedures to select among trading venues. Yes some part of 'best execution according to MiFID' are still not clear, but there is work to be done whilst the high level concepts and the big picture is being discussed.

On top of that both examples will create changes in the corporate reference data, those changes may affect all the IT systems used by the company.

A lot of small and medium sized institutions are not in a hurry. 167 working days does not look like a long time to prepare for what might as well be considered Big Bang 2.