The Markets in Financial Instruments Directive (Mifid): an expert view

The Markets in Financial Instruments Directive (Mifid)

Karl Flinders

Thursday 01 November 2007 04:12

The Markets in Financial Instruments Directive (Mifid) is now law across Europe,bringing major technology challengesto the investment industry.

Mifid is an EU directive that attempts to increase participation in the sector through increased competition and transparency.

Mifid provides consumer protection in the investment industry, by creating a more competitive environment, with investors given the right to ask investment firms to prove they have given them what they promised. This is known as "best execution" and firms must be able to show they have adhered to their own policy for best execution when completing an investment.

These policies will be based on factors such as price, stock exchanges used and trade execution speed.

Technology infrastructures within investment banks, brokers and exchanges must be upgraded with new storage, connectivity and routing technology if they are to meet the Mifid requirements and prosper after its implementation.

The measures used to achieve Mifid compliance can help investment firms differentiate themselves through technology and as competition unfolds.

Financial institutions rely heavily on the data they own and require technology to get the most out of this, moreso since the Markets in Financial Instruments Directive's inception on 1 November.

At the stock exchange level Mifid brings competition with the removal of the "concentration rule" across Europe, which states that trades should go through local exchanges, meaning investors will have more choice.

Although this has been the case in the UK for some time, the opening up of pan-European investment trade is driving the creation of new venues.

The Markets in Financial Instruments Directive has not only instigated increased technology planning by existing firms, it has also created new ones.

BOAT is an example. The trade reporting platform, which was created by major investment banks to take advantage of the market liberalisation created by the Mifid directive, enables investment firms to meet their pre-trade quoting and post-trade reporting obligations.

The platform collects, collates, validates and stores trade data and publishes it to the market in real-time.

Turquoise is another trading platform set up by a group of investment banks to take on the traditional exchanges.

Useful sites and resources

The FSA's Mifid page >>

Mifid on Wikipedia >>

Silicon' cheat sheet on Mifid >>

Mifid connect >>

The EU Single Market>>

The London Stock Exchange Mifid resource >>

Blogs

Chris Skinner's blog >>

Mifid and you >>