www.sii.org.uk

Christopher Bond MSISenior Adviser to SII on Compliance

Operations P.I.F

2 February 2006

““““This [MiFID] proposal is a cornerstone of the Financial Services Action Plan.

If we want a true internal market in financial services, with all the

enormous benefits that will bring, we need investors large and small to be able to invest across borders easily

and with confidence

Fritz Bolkstein EU Internal Markets Commissioner on MiFID in November 2002 when the proposal was launched.

Scope of MiFID increased

e.g. Investment advice

Internal Organisation e.g. Conflicts of Interest

(separate slide)

MiFID Conduct of Business e.g. home country rules

(separate slide)

Regulated Markets and Alternative Trading Systems

e.g. MTFs

MiFID at a Glance

Which Firm Functions are Affected?

MiFID

Operations

e.g. trade reporting

I.T. Technology

e.g. data collection

Internal Audit

e.g. authority

Legal

e.g. Client Agreements Compliance

HR

e.g. Training

Senior Management

Front Office

e.g. Sales, Trading and Investment Management e.g. Conduct of Business

MiFID – IT/Operations Perspective

Account opening

eg new client classifications

Order execution and routing systems

Post trade reporting including new

products

5 year record keeping – 1 year phone

recording

Increased product scopeeg OTC Derivatives

Pre-trade price reporting for equities from S.I.s

and MTFs

Best Execution venue analysis and monitoring

Instrument data problem

eg ISIN contrast RIC

IT/Operations

NOTE: The Capital Requirements Directive preparation is at the same time.

New Requirements New Requirements

Commercial Opportunities Commercial Opportunities

Static Data

StaticData

• New client classificationseg divide Intermediate Customersbetween professional and retail clients

• Different order handling rules

• Full suitability test for advisory and managed clients

• Managed client expectations

• Smooth transition

• Use grandfathering where available

• Standard internal and external approachto identifying instruments

• Change instrument codes (RIC) v machine readable (ISIN/SEDOL/CUSIP)

• Algorhymic trading

• STP

Client Static Instrument Data

New Requirements New Requirements

Commercial Opportunities Commercial Opportunities

Price Reporting

Price Reporting

• Systematic Internalisers (SI’s)Collect and distribute pre-trade equity prices internally

• Publish unexecuted limit orders

• Commitment to deal limited to standard sizes in liquid securities

Analyse profit of individual traders, products and market segments

Pre trade price reporting Post trade price reporting

• Any uncompetitive prices or costs more transparent

• Better access to competitors’ prices and new liquid markets

• Possible charges for pre-trade information

• Post trade price collection and external reporting (including for new products)

• Provide for deferred reporting of largest trades

• Consider speed of reporting

Booking Names

Some of the New Products New Countries

Cash settledExotic

Commodity Derivatives

Financial Contracts for

Difference

Credit DefaultSwaps and

CDOs

Units in Collective Investment

undertakings

Money MarketInstruments

Cash settled Exchange Traded

CommodityDerivatives

Commodity Derivatives

settled through clearing house –

includes OTC

Multi Market Single Format27 EU Countries3 EEA Countries

Not multi format domestic market

Best Execution

OpportunitiesNew Requirements

Best Execution

New test including full cost, speed, probability of execution and settlement (including for

professional clients)

Receive and distribute internally information received from other

sources

Breakdown of trading cost to achieve and

monitor best execution

Order routing/algorhymic trading

Access to new liquid execution

venues

Gain/protect market share

MiFID for Investment Managers – Relations with Customers

Retail Customer Agreements Reporting to Retail Customers

Frequency eg quarterly

Best Executionresponsibility

Transaction execution details

eg venue

Breakdown ofcommission fees and

charges

Information on Corporate Actions

No prescription on content or frequency

for professional clients

Reporting percentage of loss

Objectives and permitted levels

of risk

Method and frequency of valuations

Permitted investments

including limits

Investment Management

Record Keeping

Record Keeping

Five years for record keeping

1 year phone records

Website Reporting Accessibility of information

NewRequirements

CommercialOpportunities

MiFID-Related CPs and their planned publications dates

Planning for MiFID - overview November 2005

Treasury authorisation consultancy document December 2005

Main MiFID CP April 2006

System and controls CP April 2006

Financial promotions CP May 2006

MiFID follow-up CP H2 2006

Non-scope MiFID-dependent CPs

Disclosure Q1 2006

Simplifying the retail COB regime Q2 2006

Standards for non-MiFID scope wholesale firms H2 2006

Systems and controls for non-MiFID, non-CRD firms H2 2006

Expected deadlines

MiFID implementing rules and guidance made 31 January 2007

Firms to be complying with MiFID requirements 1 November 2007

The Competitive Position of London as a Global Financial Centre “ “ More than 90% of respondents viewed availability of skilled personnel as Very or Critically Important. London and New York both scored highly on the availability of skilled staff, with 98% of respondents giving a rating of Good or Excellent. London appears to have a marginal advantage with an Excellent rating of 75%,compared with 66% in New York.””

Source: Report of Corporation of London of November 2005

Cost per Person

Trades processed per

Person

Estimated Person Cost per Trade

100% Primary Location $128,312 41,226 $3.11 50% Primary / 50% Secondary $77,851 23,267 $3.35 10% Primary / 45% Secondary / 45% Tertiary

$58,607 18,394 $3.19

Benefit from groupknowledge

Establish Firm wide

Central team

Knowledge“Tsars” in each

department

Communicateto all staff

Alter Firms’strategy to take

opportunities

Involve Senior

Management

Revise internal procedures

Budget for outside costs

eg IT, Compliance,

Legal

How Firms Address MiFID

What is the Regulatory Update?

Members’

new benefit

Coded for individual sector application

Recent and future changes and trends in UK

financial regulation

Hard and soft copyFor senior and

junior professionals

3 levels of

information