The Markets in Financial Instruments Directive (MiFID) is one of the furthest-reaching reforms ever to be made to the European capital markets system. Its 73 Articles will require all investment firms that are engaged in trading financial instruments and their derivatives to make wholesale changes to the way they do business. In particular, the Articles relating to best execution and transparency are likely to have a significant impact on the way firms conduct and report their business transactions.

As a result, the impact on the business and IT is likely to be significant and there is not a lot of time available for companies to make the necessary infrastructure changes. National regulators in the EU member states only recently started to publish the finer points of the Directive, and with many of the affected sell-side and buy-side firms across the EU not receiving concrete guidance until earlier this year, it has left only nine months to complete the necessary compliance initiatives.

Although all European financial services and banking industry executives are aware (and somewhat concerned) about the looming November 2007 date, MiFID is really going to be as much an IT problem as a business problem. As business executives recognise that complying with MiFID transparency requirements is more about the cost of doing business, the need for them to get on with what they do every day – that being to satisfy their clients – means that it is now left to the IT team to figure out the most efficient and non-intrusive way to ensure their systems will be compliant, before getting back to supporting the business users who are focused on revenue and growth.

The smooth running of the underlying IT infrastructure will be critical to meeting MiFID requirements. If an application is down, a message is formatted incorrectly, or a trade report is not submitted on time, either the market or the regulators - and even the European Courts - may intervene. It is therefore crucial for IT departments to be able to manage multiple sources of heterogeneous data, process high volumes of real-time data, and ensure continuous, uninterrupted, operations.

Efforts are currently being made to assess the likely impact of MiFID on existing systems and the overall IT infrastructure to identify any gaps that will need to be addressed by modifying or replacing existing systems or implementing new ones. Yet with only a few months to meet the deadline, there will be no time for extensive re-engineering of trading, publishing and reporting systems. A rapid but effective technology solution is imperative.

Technology Challenges
Inevitably, complying with the business challenges posed by MiFID will have an impact on the IT infrastructure that supports an investment firm’s buying, pricing, selling and reporting processes.
The most important requirement for achieving successful MiFID post trade data management is to overcome the problem of business and data silos and operational fragmentation. Large investment firms, especially those with operations in more than one country, typically operate a multitude of different transactional and back-office systems which will need to be rationalized from a data integration perspective.

Next to that complexity, the sheer volume of transactions post-MiFID is likely to increase by anything up to 50% or even more. On both the sell-side and buy-side of the markets, managing transaction costs will be critical as the number of transactions grows, but the average value is likely to decline hence reinforcing pressures on technology to support these higher volumes.
Moreover, transactional data must also be stored in such a way that it meets new records retention requirements for such data (which must now be retained for up to five years) and easily retrieved, in context, to prove best execution.

What Needs To Be Done?
For each firm that is subject to MiFID, the impact of the Directive will depend on the current state of preparedness for the new rules. Organisations that have been working on a comprehensive MiFID programme across all instruments and back-office functions, and have invested in processes and technologies to manage the trade lifecycle need not be too concerned. On the other hand, firms that have pursued independent single instrument operating platforms will likely struggle to meet MiFID’s new requirements.

In IT terms, the amount of work that needs to be done will depend entirely on the chosen business models and IT infrastructure. Firms that have already invested in enterprise data stores, largely standardised systems and flexible architectures will have a lower cost to change. Those lacking an integrated, flexible infrastructure must start looking at what needs to be done in terms of integrating and consolidating systems and data.

In its work with clients in the EU financial sector, GoldenGate has identified three categories of barriers to post trade compliance from an IT perspective: speed, complexity and data integrity.

Firms that take a holistic, structural view to achieving MiFID compliance will benefit the most in the long run. A well implemented solution will not only ensure MiFID compliance, but will also result in a flexibly integrated IT architecture and a central data repository that will allow business to be conducted more efficiently and will provide a central source of data for future analysis, planning and strategy-making.

However, there are arguments against making wholesale changes to the IT infrastructure, which fall broadly into three categories: (1) the lack of time and resource available given the closeness of the compliance deadline and the other IT projects currently underway; (2) the perceived cost and complexity of making major infrastructural changes, and (3) the internal politics of defining who ‘owns’ individual systems, processes and data.

Despite these barriers, there is no denying that much of MiFID demands front-to-back integration across the existing IT infrastructure. Without a composite view of MiFID transactional data integration scenarios across all product lines, financial institutions will find it difficult to cope with increasing process complexity, promote data flexibility or achieve MiFID compliance for trade and transaction reporting and record keeping.

Transactional Data Management (TDM) – a potential solution
One scenario that will help firms cope with these pending challenges is implementing data integration software which utilises a cost-effective and non-intrusive technology.
Given the short timeframe for MiFID compliance and the high costs associated with systems re-engineering, most firms will find the prospect of a costly IT infrastructure overhaul either impossible or, at the very least, undesirable. Even in firms where there is a willingness to re-engineer some of the IT infrastructure, or put in place a new technology solution for reporting or record-keeping, finding the skilled resources to carry out the project is likely to be difficult. All firms have to deal with MiFID – in addition to other projects – in the same constrained timeframe, so there will be a scarcity of consultants and internal resources to help implement new systems.

GoldenGate TDM offers firms a practical alternative to the more costly and complex data integration approaches including Extract, Transform and Load (ETL) Enterprise Application Integration (EAI) and even custom hand-coded scripts which typically become inflexible and costly to maintain over time. GoldenGate TDM will provide firms with the necessary transactional data capturing, filtering and mapping, routing (with compression and encryption), and delivery functions needed to consolidate trading, reference, and clearing and settlement data from any number of heterogeneous, distributed databases.

With an implementation timeframe of weeks rather than months, TDM does not require any changes to be made to existing applications and so relieves pressure on busy IT departments and provides a robust, enterprise-wide data integration and consolidation solution without the costs and organisational impact associated with manual coding, ETL or EAI.

Put simply, any IT measures that firms implement in order to meet the Post Trade MiFID Requirements within the November 2007 deadline will need to be as simple and as non-intrusive as possible, both from a human resources and IT infrastructure perspective. From a resource standpoint, no firm wants to throw an army of people at a project that is designed to preserve the status quo, rather than advance the business. From the IT point of view, the ideal solution will be one that can be implemented quickly and easily and without necessitating complex changes at the application, database or middleware level.