The European Commission’s MiFID II reforms will be one of the biggest shake-ups to the financial industry in years, particularly in terms of technology. We discussed this with Pat Phillips, practice director at Xceed, to hear what implications the changes have for trading firms and if there are any opportunities for companies to actually benefit from them.
HFT: What aspects of the coming MiFID II reforms will have the biggest impact on IT structures in financial organisations?
Pat Phillips: MiFID II's complexity lies in the fact that its scope has been expanded to include a number of other asset classes such as derivatives, structured deposits, emissions allowances and commodities. This leads to organisations needing to make fundamental changes in the infrastructure of technology systems, namely in banks, commodities firms and some data providers. Many financial services firms will need a complete overhaul of their systems including the ways they manage both their own and clients' information.
However, MiFID II is in many ways a double-edged sword. On one hand, from a business perspective the new rules mean high costs associated with infrastructure upgrades and complying with the stringent requirements, such as the publication of transparency data and transaction reporting. On the other hand, for the IT industry, it is much better news, leading to increased opportunities to carry out the necessary work. The CIO’s role will be key in understanding the changes required for their organisation and ensuring they have individuals with good knowledge of information management and all aspects of market data. People with business process change experience and expertise in back office functions will see their roles highly sought after.
For those firms already under the MiFID umbrella, the consequences of MiFID II are likely to involve a review of current infrastructure, tools and process flows to ensure they are able to comply with the new directive. If there have been any acquisitions, they will need to review how well they have been integrated and perhaps consider running some sort of audit to measure compliance and expose any risks.
For those who currently fall outside the current remit, such as commodities traders, they will need to set up the necessary infrastructure to ensure compliance. It will probably also be necessary for IT executives to present the business case for requisite funding.
HFT: Do you believe that the coming reforms present any possible opportunities for IT structures in investment firms?
Pat Phillips: Much will depend on how firms are currently structured and whether they have the expertise to design, implement and run the infrastructure changes. If they don’t have these capabilities, they may need to consider using IT professional service suppliers.
HFT: Increased technology costs are a key concern. How can IT professionals minimise these costs?
Pat Phillips: By utilising solid infrastructure architects IT professionals should be able to get the optimum design. There are IT professional service firms who can help ensure best practice principles have been applied from their experiences in working with other firms. With respect to MiFID II, it is probably wise to start the preparation without committing too much capital. Until the directive has overcome the hurdles and challenges it faces elements may be rewritten which could result in the IT impact being lessened.
HFT: What role will improved information management play in dealing with the MiFID II reforms? How can this particular challenge be tackled?
Pat Phillips: Having complete transparency in any transaction is always helpful and has been demanded by many in the EC for some time. Having the ability to control the limits and order volumes will also be extremely important. In addition, reporting improvements are expected which should result in more granularity and consistency.
HFT: What skills and abilities will be central to the industry coping with the MiFID II reforms?
Pat Phillips: Good IT people who also have a good understanding of market data and order flow routing are going to be in great demand. Firms who operate exchange platforms will need to ensure their staff are continually kept up to date and trained.