A European Union securities trading directive due to take force next year will help create more unified European capital markets but smaller financial industry firms may perish due to high costs.
Experts on a panel debate at an international futures and options conference in Switzerland agreed on September 07 that big market players seem quite well prepared for the changes due in November 2007 as a result of the EU's Markets in Financial Instruments Directive (MiFID).
"There's a real disconnect between different parts of the industry," said Jonathan Herbst, a partner with London Financial Services Group Norton Rose and previously head of European Law at Britain's Financial Services Authority.
"Some large players are well prepared. The smaller players are going to be under tremendous pressure," he said.
MiFID introduces new rules for trading in shares, bonds and derivatives and will apply in all European Union member states, plus Norway, Lichtenstein and Iceland.
Technology upgrades and new staff needed to cope with the more transparent reporting of pre-trade prices, transaction execution and post-trade clearing and settlement required under MiFID will lead to increased costs, the panellists said.
"There will be consolidation across the value chain; sell-side, buy-side, exchanges and technology vendors," said Jim Gollan, Chief Executive of London-based stock exchange virt-x.
"MiFID may be, for some, the load that is just too much; they will withdraw or seek mergers," he said. For some firms, the costs aiming for perfection in information technology and compliance might exceed new revenue opportunities, he said. "Technology is an important stay-in-the-game factor; only the larger players can afford to invest," he added.
But Ludovic Aigrot, chairman of the MiFID task force at the Federation of European Securities Exchanges and Director of the European Affairs department at four-nation stock exchange operator Euronext, saw some longer-term benefits. "The costs will be compensated by economies of scale. There will be more costs, but also more consolidation," he said.
One of the most important changes to be introduced through MiFID is the concept of "best execution" on client orders across all asset classes, the panellists said.
For investors and other financial industry players elsewhere in the world, "European markets will not be seen as national markets any longer", Aigrot said. That would make the European markets less difficult to access from abroad, he said.