1. MiFID implementation Paul Richards, ICMA November 23, 2006 The information and expressions of opinion contained in this presentation are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. Moreover, be advised that the area covered by this presentation is developing. © International Capital Market Association 2006

2. 1 Scope and timing of MiFID  MiFID will replace the ISD  It will apply across the EEA  Transposition deadline: January 31, 2007  Implementation deadline: November 1, 2007  Some Member States will be on time; others may not

3. 2 Implications of MiFID for investment firms  Passporting and authorisation requirements  Conduct of business rules  Organisational requirements

4. 3 Passporting and authorisation requirements  The existing ISD passport  The new MiFID passport  Application to third country investment firms?

5. 4 Conduct of business rules  Best execution  Client classification  Suitability and appropriateness  Price transparency  Safeguarding client assets

6. 5 Organisational requirements  Conflicts of interest  Outsourcing  Transaction reporting

7. 6 Preparing for MiFID  Firms have a great deal to do, especially in compliance and IT  MiFID implementation overlaps with Basel II and SEPA  It is not just an IT issue: it is a competitive issue for firms

8. 7 Role of the FSA in MiFID implementation  A principles-based approach to regulation  “Intelligent copy-out” of MiFID  Publication of a series of consultation papers  Discussions with the industry

9. 8 Role of MiFID Connect  To reduce the burden on firms by taking a common approach  ICMA is working jointly with 10 other associations and with firms  Industry guidance is being drafted with help from Clifford Chance

10. 9 Focus on best execution  Investment firms should take “all reasonable steps” to obtain “the best possible result”  They should take account not only of price but other factors  There is a difference between wholesale markets and retail clients  Requirements for firms executing client orders and for portfolio managers are similar, but not the same  There have been industry discussions with the FSA on scope, benchmarking, price and internal models

11. 10 Focus on bond market transparency  MiFID imposes mandatory pre and post-trade transparency on certain dealers who trade listed equities OTC  The Commission must report by October 31, 2007, on whether to extend equity transparency to bonds and derivatives  ICMA has funded independent CEPR research and responded to the Commission’s Call for Evidence  The Commission published a Feedback Statement on November 13

12. 11 Focus on transaction reporting  MiFID requires investment firms to report certain transactions to the regulator by T+1 in a format of 23 fields  A firm can report itself, via a third party, by a trade matching or reporting system (such as TRAX), or an exchange  TRAX2 provides a reporting mechanism in the UK and Belgium and expects to be recognised as an ARM  The FSA has proposed additional requirements not required by MiFID