Christopher Bond MSI Senior 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 scope eg 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 Commercial Opportunities Static Data Static Data New client classifications eg divide Intermediate Customers between 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 approach to identifying instruments Change instrument codes (RIC) v machine readable (ISIN/SEDOL/CUSIP) Algorhymic trading STP Client StaticInstrument Data

New Requirements Commercial Opportunities 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 settled Exotic Commodity Derivatives Financial Contracts for Difference Credit Default Swaps and CDOs Units in Collective Investment undertakings Money Market Instruments Cash settled Exchange Traded Commodity Derivatives Commodity Derivatives settled through clearing house – includes OTC Multi Market Single Format 27 EU Countries 3 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 AgreementsReporting to Retail Customers Frequency eg quarterly Best Execution responsibility Transaction execution details eg venue Breakdown of commission 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 Five years for record keeping 1 year phone records Website Reporting Accessibility of information New Requirements Commercial Opportunities

MiFID-Related CPs and their planned publications dates Planning for MiFID - overviewNovember 2005 Treasury authorisation consultancy documentDecember 2005 Main MiFID CPApril 2006 System and controls CPApril 2006 Financial promotions CPMay 2006 MiFID follow-up CPH Non-scope MiFID-dependent CPs DisclosureQ Simplifying the retail COB regimeQ Standards for non-MiFID scope wholesale firmsH Systems and controls for non-MiFID, non-CRD firmsH Expected deadlines MiFID implementing rules and guidance made31 January 2007 Firms to be complying with MiFID requirements1 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

Benefit from group knowledge Establish Firm wide Central team Knowledge “Tsars” in each department Communicate to 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 copy For senior and junior professionals 3 levels of information