Post-MiFID, the challenge is Clearing and Settlement

Today's Financial Times
has a report on algo trading, with the following line in the middle:
"Last week Chi-X, an upstart platform majority-owned by Instinet
Europe, marked its first anniversary by capturing almost 15 per cent of
total trading in LSE-listed shares at one point during the day. A trade
executed on its system takes a mere two milliseconds."

The article goes on to point out that the Chi-x example is a realisation of the MiFID dream.

Equally,
I spoke on a panel the other day about the impact of MiFID six months
on, and realised that as well as Chi-x we now have MarkitBOAT,
Turquoise, Rainbow, SmartPool, Virt-x, PLUSMarkets, Liquidnet,
Millennium, BATS Trading, Equiduct ... the list goes on and gets longer
by the day.  And this is all thanks to the changes inspired by MiFID
opening the markets and removing the concentration rules.

So yes, MiFID is here, transposed, implemented and up and running.  That sorts out pre-trade and trading but, as the FT article points out,the issue is now clearing and settlement.

Clearing
and settlement is still aligned with national operations: Euroclear,
Clearstream, LCH.Clearnet and all that stuff, along with Central
Securities Depositories (CSDs) and their Central Counterparty (CCP)
mates, all clogging up the process. 

This is where the
Commission is now focused with David Wright, Director of Financial
Services Policy and Financial Markets at the European Commission,
telling me last year
that "there have been a large number of requests – 40 or more from one
organisation – for interoperability.  It’s now critical to the EC that
this results in flows of business to increase competition and to drive
down prices and commission.  The Commission will monitor this space
carefully, and we have made it plain that we will not tolerate any
anti-competitive blocking of any form."

In fact, he's adamant that this is a critical priority for the Commission.

Equally, the ECB now has an open forum to debate Target2 for Securities which will force the issue.  Then there are the agreements
amongst clearers, announced this week.  Then there's the LSE, who
gained a clearer through the acquisition of Borse Italiana, and now
there's the DTCC who gained approval for their EuroCCP this week from the FSA.  Their clearing operation has already been selected by Turquoise.

This
hopefully means that we are rapidly moving from a world where pre-trade
now guarantees best execution and transparency with low latency thanks
to MiFID, through to streamlined, transparent and competitive CSDs and
CCPs which also guarantee free and open choices.

With all of
these changes of execution and trading venues, and now clearing and
settlement, whoever thinks that MiFID is yesterday's news is missing the
point.