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| MiFiD and All That - A Glimmer of Hope for Industry Consensus Aficionados? |
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| Written by Gert Raeves | |||||
| Thursday, 01 September 2005 | |||||
| Software Test & Performance Magazine | |||||
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We do love our industry drivers in STP-land. No PowerPoint-fest is complete without at least a smattering of T+1's, GSTPAs, Y2Ks - oops, wrong decade.
These days it is all about KYC, golden oldie Basel II, and hot new entry MiFid. A cynic might say that all they have in common is a somewhat uncertain future date, a somewhat uncertain scope, and a somewhat uncertain relevance to all things STP. But he would be wrong, as well as a spotty youth. Let's define STP for the purpose of this column as 'the application of technology to process automation'. There are many types of technology that can contribute to higher automation, and they all claim to give you STP. By the same token, they all seem to be claiming these days they can give you Basel II compliance, with Sarbox and MiFid thrown in for good measure. This goes some way to explain why the current state of these regulations actively invites marketeers of all corners to swarm in: we do not know the exact requirements for MiFiD yet, but having an automated and documented process and data model, with easy interoperability and scalability designed in, will almost certainly be a prerequisite. Hardware, software, network, services: they all have a role to play in preparing for the unknown. We will all need to capture more data about our clients, our processes, the products we deal with, and our counterparties. We also know we will need to publish that data to more people: business partners, regulators, and clients. It is a big job, and the speed with which this industry is responding to the draft MiFiD stuff is for once very encouraging. The work of the MiFiD Joint Working Group (JWG) especially is starting to look refreshingly relevant, translating the regulator-ese into a set of things we know and love, such as message protocols, best practice recommendations, and standards. A lot of standardization is long-cycle, and consensus based, which is why I have often derided its relevance to anyone who needs to solve problems in this lifetime. To think that there can be a single industry-wide standard for the entire lifecycle of a financial instrument is fundamentally misguided. The difference with the current spate of regulation could not be stronger: imposed from the top down, with a defined timeline and end state, it is an unlikely candidate for adoption by the standardization zealots. This is where the JWG comes in at just the right level: it is very much aware of the long cycle stuff (because many of the individuals are deeply involved in both), but recognizes that none of the MiFiD deadlines can be met if we have to wait for the outcome of standardization and harmonization. But the end state of standardization does not just materialize: many of the key organizing principles and outputs are already known and agreed from the outset. This makes it possible to work today from a set of sound assumptions about the process, format, and method for communicating (as an example) pricing and quote information, pre- and post-trade. They will not be rubberstamped by ISO for many years, but there is no reason to not move forward today. This is the approach that will make MiFiD compliance a practical possibility, without losing the compatibility with future standards. For once, here is an opportunity to have our cake and eat it.
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