Only 13% of financial services firms are confident they are on track to meet MiFID regulations, according to a MiFID readiness survey conducted by software vendor SunGard and research firm TradeTech. Also, more than 60% of respondents indicated that their preparations for the directive still required some work, despite the rapidly approaching November deadline.
The survey results, taken from the third in a quarterly series of polls undertaken by SunGard and TradeTech, back up those of an earlier poll in which over 65% of respondents admitted that they were yet to identify or plan operational budgets to meet the demands of the directive.
However, although only three European countries met the January 31 deadline for transposing MiFID regulations into their local law, 63% of those surveyed believed that, even if other EU countries failed to meet the November deadline, those countries that were on track should not delay their own implementations.
This response comes despite respondents’ concerns that MiFID-ready countries may be placed at a competitive disadvantage to those falling behind. Forty-six percent of those surveyed also stated that they remained concerned that their own national regulators would add further complexity to MiFID through the imposition of national laws and additional guidance.
“There is a feeling from some people within the UK that there are some countries that probably will not be ready by November and maybe they are thinking to themselves ‘that it doesn’t apply to us’,” says Carl James, head of portfolio services for Henderson Global Investors. “I am sure it will eventually but perhaps after the November 2007 deadline.”
Record keeping is an area of concern within MiFID, according to the survey results. More than 65% of respondents indicated that they would either struggle to handle the new requirements proposed by the Committee of European Securities Regulators (CESR), or that they were unable as yet to ascertain the impact of these proposals.
SunGard and TradeTech believe the survey results are now beginning to show an increased level of consistency in the industry’s attitudes. They say this implies that understanding of MiFID and its impact is solidifying. Once again, more than half of respondents generally agreed that exchanges were the most likely entities to suffer because of MiFID over the next 10 years.
The survey also highlights that best execution for equities under MiFID remains one of the biggest challenges for firms. Only 23% of firms believe they will know how to ensure best execution by the end of April, with most (62%) estimating an August/September timeline. Over 70% of firms expect to use post-trade statistical analysis to ensure best execution. More than 45% expect to do pre-trade analysis and more than 40% expect to use manual reviews.
“Many buy-side firms are now expecting to opt down to professional status, with the impact that many will become Systematic Internalisers,” says Richard Thornton, head of MiFID consulting at SunGard Consulting Services. “Of those surveyed, 25% of buy-side firms now believe they will become systematic internalisers within the next five years – a significant increase from 6 months ago.”
Since its launch in September 2006, more than 400 participants from global investment banks, institutional and private asset managers, consultancies and exchanges from across Europe, the US and Asia have responded to the SunGard-TradeTech MiFID readiness survey.