In less than two months Europe's stock exchange technology will be put to the test when the Markets in Financial Instruments Directive (MiFID) brings new requirements for investment firms, including banks, insurers and hedge funds to offer strict consumer protection.
MiFID, which will come into force in November, will have knock on impact for stock exchanges and other stock trading venues, which must be able to prove that they have given the best possible deal, known as "best execution", to investment firms.
Markus Gerdien is president of business area market technology at Nordic Exchange OMX, which supplies technology to more than 60 exchanges throughout the world.
"With [MiFID] in mind all trading venues must have a technology infrastructure that ensures that all steps are taken to deliver efficiency and meet best execution requirements," he said.
Exchanges should deploy modular rather than monolithic tools to generate business and process transactions, if they are to meet the MIFID requirements effectively, he said.
"In order to be competitive, trading venues must constantly be able to assure investors best execution. Here the focus is no longer strictly on price, other factors like cost, speed, likelihood of execution and settlement are equally important," he said. "Any trading venue will have to earn its business in the future."
The London Stock Exchange has invested £40m and four years in its Tradelect core trading platform which went live in June. Techonology is critical for implementing the new rules. "All MiFID services will be based on next-generation technology, allowing increased capacity, speed and flexibility," it said.
Plus Markets, which was granted recognised investment exchange status in July, is installing trading and market surveillance technology from OMX in order to expand the number and range of securities it trades. The technology will enable the share trading venue to offer services that are fully MIFID compliant.
Nemone Wynn-Evans, director of business development, at stock trading venue, Plus Markets, said it is in every trading venue's interests to offer best execution to investment firms.
"PLUS Market is confident its platform will be an ideal venue for investors to optimise best execution under MiFID, offering efficient and transparent on-exchange trading supported by market surveillance to [industry] standards," she said.
"The technology has to be resilient and fast. It has to be scaleable to deal with ever rising volumes - particularly so-called 'spike' volumes in busy markets - and flexible enough to accommodate changing user technology interfaces, new contract developments and new regulatory requirements," she added.
The Financial Services Authority said the MiFID regulations are almost finalised with the major issues resolved and only a few points to iron out.
Under Mifid, investment banks, pension funds, and other commercial investors must take all reasonable steps to obtain the best possible result for their clients taking into account a range of factors including price, costs, speed and the likelihood of execution settlement. Stock exchanges and stock trading venues can help investment firms achieve this by providing competitive services along with transparency and reporting services.
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