Eric Derobert of Caceis summarises the implications of MIFID on the European financial services sector.
Adopted in 2004, MIFID is currently being transposed into French law. Financial intermediaries have until 1 November 2007 to conform to the new law.
Competition between entities executing orders
The directive aims to abolish the concentration of orders on a regulated market by authorising three execution solutions: regulated markets, systematic internalisers and multilateral trading facilities (MTF).
The counterpart to the opening of this market will be enhanced transparency rules, whose most restrictive aspects will apply to the pre-trade stages. Similarly, regulated markets, systematic internalisers and MTFs will also have obligations pertaining to the post-trade phase.
It should be noted that OTC transactions, which are not regulated by the Directive, do however fall within the framework of post-trade transparency rules, unlike the situation under the current Investment Services Directive (ISD). MIFID lays down the principle of best execution and the obligation to use resources that can be evaluated by the supervisory authorities.
A very broad scope of application
Asset management companies are concerned by this directive. As regards the relationship of Investment Service Providers (ISPs) with their clients, the general principle of good conduct and the obligation to provide accurate information will be a result of a new segmentation of investors whose new categories will include professional clients by type and eligible counterparties.
This last category refers to entities that may deal on an equal footing with ISPs, i.e. ISPs themselves, "UCITS" (mutual funds) and their management companies.
A review of the organisational rules for ISPs
The directive strengthens the internal control and compliance functions, as well as the supervision of conflicts of interest and outsourcing procedures for certain important functions (supervision of the sub-contractor and maintenance of the principal's responsibilities).
Although these rules only differ slightly from the principles already adopted and implemented in large organisations, they may have a significant effect on the organisation of some structures. CACEIS, aware of the impact of MIFID and of the opportunities it provides for development, would like the company to anticipate clients' new needs by developing suitable services.
When appropriate, it will be equally important for our clients to have access through our staff to the CACEIS analytical capabilities and solutions that are best suited to the changes they plan to implement within their own organisations.