2007 – year zero for financial markets

Next year, one of the weightiest pieces of legislation ever to emanate from Brussels will hit member states with a dull thud. MiFID, or the Markets in Financial Instruments Directive, is a mighty chunk of regulation with apparently simple aims. Intended to make the process of trading securities across borders lighter, simpler and less costly, it will mark a year zero of sorts for EU financial markets.

Those financial firms that adapt the quickest to the new regime could stand to reap huge benefits.

A cornerstone of the Financial Services Action Plan, MiFID aims to create a ‘single passport’ for investment firms by ironing out differences between national regulatory regimes, harmonising investor protection rules and increasing the transparency of securities transactions. The changes are supposed to boost competition in the sector by facilitating cross-border investment activity. Getting there will not be easy.

Member states are supposed to transpose the directive into their national laws by 31 January, a significant challenge for authorities still struggling to clear up the many ambiguities clogging the document. This deadline has already been extended under the UK presidency of 2005 by six months. Even so, not all will be ready, says centre-right MEP Piia-Noora Kauppi, who was responsible for drafting Parliament’s opinion on the directive earlier this year. It seems likely, however, that given the size of the beast, some leeway may be afforded by EU authorities.

MiFID is supposed to come into full effect on 1 November 2007. "Even though the timescale was extended, it’s still pretty tight," says Michael Snyder, chairman of the policy and resources committee of the Corporation of London, which champions the interests of stakeholders in the City. "I think they [regulators and financial firms] are moving fast, but there’s a lot to do. They are still challenged by timescale. Obviously small players will be more challenged.

"It is a mammoth exercise. It’s important that this is done properly throughout the EU, otherwise a lot of people won’t be very happy," warns Snyder. "The cost of implementation is really significant and that is why it is absolutely crucial that it goes on to deliver the benefits it promised."

Some parties estimate that MiFID implementation costs are only the thin edge of the wedge. US broker JPMorgan Securities last week warned that €19 billion in market capitalisation could be lost among eight top European wholesale banks as a result of MiFID.

One Brussels-based analyst was quick to wave aside the scare stories. "Most people would find it difficult to quantify how much it will cost them, first because the actual shape of the legislation only became apparent recently and second because average costs will depend on how firms react, [on whether] they only meet the costs of the directive or if they change their business model," she says.

Next year, one of the weightiest pieces of legislation ever to emanate from Brussels will hit member states with a dull thud. MiFID, or the Markets in Financial Instruments Directive, is a mighty chunk of regulation with apparently simple aims. Intended to make the process of trading securities across borders lighter, simpler and less costly, it will mark a year zero of sorts for EU financial markets.