...regulator — in the UK, this is the FSA. In the case of cross-border trades, however, the FSA will likewise have to forward a copy of the report to all affected local regulators.
The final category, meanwhile, is cross-border business, which means that investment houses will be able to trade in any European country they choose, but will also have to follow local business conduct rules rather than domestic ones.
So, who will be affected by this, when will the Directive become operational and what will it mean in IT terms?
MiFID will apply to all firms that are currently subject to the ISD, which includes investment banks, portfolio managers, stockbrokers, corporate finance companies, many futures and options firms and some commodity brokers. It will also apply to all organisations that operate a legal entity in Europe.
One of the key issues at the moment, however, is that much of the nitty-gritty of MiFID is still to be defined. Although a revised draft of the Directive was published at the start of February, already six months late, it is unlikely to be ratified by the European Parliament until June or July of this year.
Member governments will then need to vote the Directive into law before local regulators can decide on how individual regulations should be implemented. The final deadline for compliance is currently set at 1 November, 2007, although penalties for non-compliance have yet to be decided.
But the fact that everything has still to be set in stone is not reason enough for organisations to drag their feet. "The final level two draft proposals, which are implementation measures, were published on 6 February so there's no excuse for people not to start work. They're mandates on how to do things and while there might be some fine tuning as they're signed off by the European Parliament, they're unlikely to change that much," says Bearingpoint's Jenkins.
Nonetheless, he indicates that merely "a handful of international investment banks are on top of the game," while most organisations have only just begun to get started.
Those that have embraced the new Directive with most enthusiasm are wholesale traders, and particularly US-based organisations, on the sell-side, which are keen to become systematic internalisers and embrace the potential opportunities offered by the opening up of the market.
The most reluctant, however, have been those on the buy-side such as asset managers because they do not expect the forthcoming legislation to have as large an impact on them.
However, at this point, says Accenture's O'Sullivan, most firms should at least be at the strategic planning stage and should ideally be undertaking impact analyses to work out what they are going to spend and how.
Although figures vary enormously, the cost of compliance is expected to be about $22m for the average broker and as much as $35m for a tier one investment bank, with as much of half of that likely to go on IT.
Caldwell, however, warns compliance should not be regarded purely as an IT project, but predominantly as a business initiative as it affects everything from legal to operations and strategic and tactical decision-making. "It's not an IT project, but it's also very much of one because most of the implementation will probably take place at the IT level," he explains.
As a result, it is crucial that IT managers, who have so far been at the forefront of the push for compliance, involve the business as soon as possible in making key decisions. These include whether it wants to remain as it is, operate across Europe as soon as it can or enter the market gradually.
Based on the decisions taken at this stage, it will then be necessary...
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