The EU-wide Markets in Financial Instruments Directive (MiFID) will lead to a EUR1 billion technology spend by capital markets participants, according to estimates by analyst group Celent, but it will also create a EUR1.15 billion revenue-generating opportunity for the investment industry.
Celent bills MiFID, scheduled for introduction in April 2007, as "the most far reaching reform of any major financial market ever undertaken".
The major overhaul of the regulatory framework in Europe includes the end of concentration rules requiring orders to be processed via a national exchange and a lossening of the prohibitions aginst internalising order flow, along with a set of 'best execution' obligations for investment firms.
The introduction of the regulations is expected to open up a range of new revenue-generating opportunities for well-prepared investment firms.
Celent estimates that market players will eventually internalise about 30% of all equities order flow, generating over €1 billion annually in trading profits. The rules also allow for firms to publish their off-exchange trades through a variety of channels, creating an annual €150 million market opportunity in market data sales.
Under MiFID, exchanges will lose significant revenues, believes Celent, in terms of market data, print fees for off-exchange trades and trade fees. The total annual lost revenues will be over €300 million annually, suggests the analyis.
According to Octavio Marenzi, co-author of the report, "European investment firms remain woefully unprepared for MiFID. Many are totally unaware of the contents and direction of the directive, and virtually none have taken any concrete steps to prepare themselves for the new structure of European capital markets that MiFID will give rise to."