The smartest financial firms are realising that MiFID II is not just another regulatory burden - it’s a licence to remodel your business and grab market share. In this article I examine where the opportunities lie, and how the latest IT advances can help you exploit them.

Pundits have expended thousands of paragraphs on the challenges of MiFID II: how to interpret the rules, the impact of delays in finalising ToTV (traded on trading venue) rules, the wisdom or otherwise of declaring a firm as a voluntary systematic internaliser (SI) pre-September 2018, how ISIN generation will work in practice, how much it’s all going to cost... the list goes on.

Amidst all the gloom and noise, however, whispers the voice of opportunity. The core requirements under the SI regime for over-the-counter (OTC) derivatives are designed to simulate the mechanics of a public exchange. So rather than worrying about squeezed margins and fewer ways to turn a profit, it makes sense to see greater market transparency as a stimulus to investor confidence and market fluidity - and hence better trading opportunities.

Exploiting technology

For sell-side institutions, MiFID II’s transparency rules are key - any bank that can give clients the clearest prices fastest will have a major competitive advantage. That means working with, rather than against, compliance departments. It also means having an e-trading environment that is scalable and flexible, and built to harness the latest IT innovations.

By using the budget assigned to regulatory compliance to invest in infrastructure, banks can gain benefits way beyond the short-termism of mere box-ticking. Two areas of greatest potential are modernising front-ends to capitalise on web technology, and moving to the cloud to unchain deployments from the millstone of legacy environments.

The advantages of embracing cloud-based hosting are considerable: security is now as tight (if not tighter) than anything on-premise; the ability to scale up and out development environments at will; large potential cost savings through full automation; efficient environment configurations; and superior data collection enabling superior analytics and monitoring that would be prohibitively expensive using traditional on-premise infrastructures.

Web distribution is now the defacto strategic choice for front-office applications. Advancements in open-source push messaging technology, leveraging industry standards such as WebSockets, have made the price of distributing data across the web more cost effective and more efficient than ever; and advances in HTML5 mean that user interfaces have a richness that was previously undreamed of. Since this trend towards web-based technology is unstoppable, the decision to cling onto legacy ‘thick’ application technology is becoming increasingly untenable.

Embracing change

The fact that MiFID II is European legislation means that European banks can get a head start over their American and Asian counterparts, who may not be so alert to the commercial opportunities offered by the transparency rules. And by using new sources of data (both internal and external) intelligently, visionary banks will be able to spot opportunities that are either opaque to their competitors or gone too fast for the competition to act upon. Analytics don’t have to just inform management decisions - generated in real-time, they can also serve the front office.

Great times lie ahead for banks bold enough to see beyond the blinkered view of avoiding fines and resisting change. Those banks exploiting technology to bridge the front office, operations and compliance are set to be the market leaders of tomorrow.

Fergus Keenan

Head of Project Execution

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