MIFID II – Turning Negative to Positive (By Adam De Rose, Eze Software)


MiFID II is depressing. There, I said it. I said it out loud, and I’m not alone in that sentiment.

MiFID II is a behemoth. It consumes our lives these days and we resent it for distracting us from the excitement of managing money, which drew us all to the industry in the first place. As a CTO of a hedge fund recently whispered in my ear, “This used to be fun”.

As a product manager at Eze Software Group, assigned the task of understanding the impact of MiFID II on our clients and articulating the problems they face back into the organisation, I see frustration everywhere I look. From my executive team, who are understandably asking what features, enhancements, or entirely new products they need to build to help address the MiFID II challenges, to the traders, COOs and CTOs of our clients and prospects who just want someone to take the uncertainty away. While Eze Software Group’s Investment Suite can and will be used to address various different areas of MiFID II, this is a regulation for which there’s no silver bullet.

My role means I get to meet with many buy-side clients to discuss our plans, and that’s a part of my job I love. Every conversation begins the same way: “What are you doing about MiFID?” Often, this question is asked in what seems like an aggressive manner. After this happened a few times I realised it wasn’t aggression at all, but a mix of frustration, bewilderment and deep anxiety. “We know we’re really far behind in our preparation” is the second sentence I hear, as the stance softens quickly and we get to see what’s really behind the first sentence.

Well, you can’t have everyone behind. Sure, there are some investment firms out there with huge resources and complex businesses, who identified early on they’d need to kick off 25 different working groups internally. But there are also some firms with those same characteristics who are only now ramping up their efforts in a significant way. Wherever you are, if we’re sitting together about to have a conversation about how MiFID impacts your business and what ideas we’re working on to help you, you’re exactly where you need to be.

I explain this to our clients. And then I explain that’s why we’ve been quiet in communicating our “solutions” — we’ve been getting our heads down, studying.

Together We Stand…

As I run through the different aspects of MiFID and the current state of our thinking about how to help, the same thing happens every time. We begin to have a conversation. Two way. The mood changes as everyone decides it’s OK to approach MiFID using the tried-and-tested coping mechanisms of sarcasm and cynicism. Clients express their fears, together we try and clarify different parts of the regulation, we exchange nuggets of information from conversations we’ve had with our peers, our brokers, our industry associations and our advisors.

We collaborate. We invite each other to events and resolve to send each other interesting articles, even those written by our competitors. We talk about next steps, concrete things that we can actually do this month, that can move our projects forward even by a tiny increment.

And now it’s clear. We all want solutions, but everyone knows there’s still a great deal of uncertainty. Not in what the requirements are — for the most part we have the information we need — but what we’re all going to do, together, to achieve the objective. Where is the data going to come from?  How do we exchange it?  Is there a standard being developed?  We don’t want someone to solve our problems, we want to talk to people and know they understand what we’re going through. That we’re working just as hard as they are and that we have common goals.

…Divided We Fall

The relationship between vendor and client isn’t the only one that’s changing.  Relationships between vendors are evolving too.

I’m a big fan of complexity economics, and the idea that the economy is a complex adaptive system.   The relationships are not simply aggregations of the individual entities; the behaviour of the whole is different to that of the individual.

To take one example, each investment firm has to comply with the transaction reporting obligations.  The end goal is to provide the regulators with a transparent view of the markets that enables them to monitor and prevent market abuse, and detect concentrations of risk.  But what’s happening to get us from A to B is something unexpected, at least to me.

The agents in our complex adaptive system, spurred on by advances in technology, lower barriers to entry and a wealth of intellect have begun to innovate.  The entrepreneurial spirit has been awakened and fintech companies old and new are getting back into the lab.  This may be the single best thing to come out of the new regulatory world we live in.  Innovation has gone through the roof.  As a result of the challenges laid down before us, we’ve unexpectedly stumbled into a new era.  This could change everything.

The funny thing is, everyone with a product knows they’re just a piece of the puzzle.  No one has the full front-to-back solution, because the front and back keep moving further apart.  What’s obvious is that collaboration amongst technology providers is necessary, but it isn’t even something that needs to be forced.  The agents in the complex system are naturally aware of their need to survive and grow, and that means connecting to other parts of the investment technology ecosystem.  We’ve never seen a market so keen to work together, build partnerships and share success.

The products we’re seeing come on to the market are original and exciting, if not always commercially viable…  But that’s part of evolution.  Some will survive and change the game, others might prove to be the right idea for the wrong time.

One thing is certain, though.  With innovation, creativity and collaboration amongst the buyside, the sellside, and the technology vendors, we will transform this industry, and turn negative to positive.

Adam De Rose is a Product Manager at Eze Software Group focusing on MiFID II and Best Execution. Previously, he was responsible for selling Eze EMS to hedge funds and asset managers in Europe after joining as Sales Engineer across the wider Eze Software Investment Suite in 2014.

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