MiFID implementation

Paul Richards, ICMANovember 23, 2006

The information and expressions of opinion contained in this presentation are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. Moreover, be advised that the area covered by this presentation is developing.

© International Capital Market Association 2006

1 Scope and timing of MiFID

MiFID will replace the ISD It will apply across the EEA Transposition deadline: January 31, 2007 Implementation deadline: November 1, 2007 Some Member States will be on time; others may

not

2 Implications of MiFID for investment firms

Passporting and authorisation requirements Conduct of business rules Organisational requirements

3 Passporting and authorisation requirements

The existing ISD passport The new MiFID passport Application to third country investment firms?

4 Conduct of business rules

Best execution Client classification Suitability and appropriateness Price transparency Safeguarding client assets

5 Organisational requirements

Conflicts of interest Outsourcing Transaction reporting

6 Preparing for MiFID

Firms have a great deal to do, especially in compliance and IT

MiFID implementation overlaps with Basel II and SEPA

It is not just an IT issue: it is a competitive issue for firms

7 Role of the FSA in MiFID implementation

A principles-based approach to regulation “Intelligent copy-out” of MiFID Publication of a series of consultation papers Discussions with the industry

8 Role of MiFID Connect

To reduce the burden on firms by taking a common approach

ICMA is working jointly with 10 other associations and with firms

Industry guidance is being drafted with help from Clifford Chance

9 Focus on best execution

Investment firms should take “all reasonable steps” to obtain “the best possible result”

They should take account not only of price but other factors

There is a difference between wholesale markets and retail clients

Requirements for firms executing client orders and for portfolio managers are similar, but not the same

There have been industry discussions with the FSA on scope, benchmarking, price and internal models

10 Focus on bond market transparency

MiFID imposes mandatory pre and post-trade transparency on certain dealers who trade listed equities OTC

The Commission must report by October 31, 2007, on whether to extend equity transparency to bonds and derivatives

ICMA has funded independent CEPR research and responded to the Commission’s Call for Evidence

The Commission published a Feedback Statement on November 13

11 Focus on transaction reporting

MiFID requires investment firms to report certain transactions to the regulator by T+1 in a format of 23 fields

A firm can report itself, via a third party, by a trade matching or reporting system (such as TRAX), or an exchange

TRAX2 provides a reporting mechanism in the UK and Belgium and expects to be recognised as an ARM

The FSA has proposed additional requirements not required by MiFID