Wait and see attitude prevails for Mifid firms

LONDON – Research from IT services company Atos Origin has concurred with the general sentiment in the market that most financial services firms in Europe are not ready to compete in the new market that will emerge post the implementation of the Markets in Financial Instruments Directive (Mifid), which comes into effect on 1 November 2007.

Atos Consulting, the business consulting arm of Atos Origin, found that investment in Mifid compliance is well below expectations with most firms staunchly keeping to ‘wait and see’ mode before allocating precious resources to new systems and controls, and business practices compliance with the new Mifid regulations.

Atos Consulting analysed spending patterns at 15 investment banks and compared them with the cost model that the company first published in June 2005 and then adjusted in February 2006. The results showed that financial firms have spent 20-25% less than initially expected.

Significantly, rather than take advantage of the business opportunities Mifid present firms are viewing Mifid as a compliance exercise but in doing so risk losing their competitive advantage against those that move first.

Atos surmises that if the fragmentation of the market occurs soon after the implementation of Mifid, companies that have not invested in new technology such as smart order router systems will either be pushed out of the market or be forced to refocus their business.

Jeremy Bryson, senior vice president for financial services at Atos Origin, set out in a e-conference this week that change is already underway even though half of Europe is late in amending national laws to incorporate Mifid. New trading venues, such as Chi-X, are capturing market share from the traditional players and European exchanges are reporting a 50% - 120% increase in 2007 trading volumes over 2006 levels with an average 20% smaller trade size.

Bryson argued that to thrive in the post-Mifid market, organisations need to differentiate their policies and demonstrate best execution through publication of trade statistics. Furthermore, he claimed that financial firms need to maximise their order flow volume and reduce marginal transaction costs to maintain their competitive advantage.