At a recent conference the sorry state of leadership and
decision making capability in today's financial markets was perfectly illustrated. FIX Protocol Limited (FPL) did an outstanding
job in assembling many of the leading organisations and leading practitioners to debate plenty of the problems ailing
today's financial markets. But at the end of the day I was left asking where was the real leadership and who or what organisation
is really tackling the problems and would be able to introduce solutions for implementation?
It was interesting that regularly throughout the day there were various calls for regulators to take a closer and
more active role in finding and introducing solutions. This particular idea has all the ingredients of a cop out by securities
industry managers and reflects the lack of authority of today's managers. Has the securities industry been so long under
the cosh from new regulations and new directives that it has lost the ability to manage and make decisions? Does the 21st
century manager lack the depth and breadth of industry knowledge to find and implement solutions? Is it a collective, corporate,
dumbing down requiring Managers to be politically correct, rather than bold and inventive, with the courage to take a chance?
Despite the apparent neutralisation of today's managers the question
also arises, what organisation is leading the way to introduce changes and implement solutions to all the many problems facing
the markets? If you believe some people it is the regulators but for others it's the politicians. The call was made at
the conference for a mandate for change. However, who would provide the mandate. For some it was the Regulators or others
it was Politicians and for some both. It's a very strange world where the experts in the market who have the knowhow and
really do have the ability, feel the need for some higher authority to allow them, well to, frankly do their job!
In Europe we have come to expect various edicts to emerge from Brussels, with an obvious political agenda, rather than one
which is required by the markets. It's unclear how much consultation actually takes place in the initial stages of creating
a Directive or to what depth and breadth it covers and whether or not any consultation is actually with the people who have
a day to day working knowledge of the business. What we do know is that there is always a terrific amount of lobbying to try
and amend areas within directives, (after they have been drafted) this current process is flawed and ultimately proves problematic
for the industry.
It is possible the vested interests that populate throughout the securities industry, cause the
politicians to treat the markets with some scepticism about its capability to manage change. For whatever reason, directives
which have inflicted the European markets with massive change have also brought unintended consequences, which brings into
question whether the political objectives have in fact been met.
The MiFID 2 project appears to recognise that
there were some mistakes in the original MiFID Directive and the markets reactions have caused different problems, possibly
even more complicated than those it was attempting to solve. The topics and debates at the conference would not have happened
without MiFID and underline the clear gap that was created during the drafting of the directive and the consequential reaction
of the markets to either protect or take advantage of business opportunities that were derived from it.
After MiFID
the markets have fragmented tremendously and are still treading a path towards further fragmentation. The objective of creating
competition to the traditional stock exchanges has succeeded, but at what cost? Has the reduction of spread and pricing been
a commercial success for the end investor? Or has any cost saving been swallowed up by financial services firms on both the
buy and sell side? Does the end investor get a better deal?
Best execution is now far more difficult to prove
than before and the sporning of umpteen new trading venues masks transparency more than before. There are clear winners and
losers post MiFID with traditional stock exchanges obviously finding competition tougher, being forced to look at other revenue
making opportunities. The Institutional Investors and the Investment Banking business appear winners at the moment, but what
about the Retail Market? Does the man in the street gain from today's markets? Do we expect that because there are winners
in the financial services space this will automatically peculate down the food chain?
General consensuses were
reached by representatives from buy and sell side firms and solutions suppliers, concerning the solutions required by markets,
with even competing organisations in complete accord on what the markets needed and I was left thinking that with all this
agreement and love flying around the hall why don't they just get on and do it?
However, the reason for this
lack of instigation, appeared to be the wait for ‘a call to action' led by some mandate or regulatory intervention
to create the impetus. I feel this is a forlorn hope. Regulators generally do not have the in-depth market knowledge or from
technical standpoint, the ability to produce a solution, but even if they did, it's unlikely they would be motivated to
do so. Regulators assess and find weaknesses in markets and produce rules that plug any gaps to provide protection to the
investors. Their role is clear and it's very important they are not brought into market issues. So which organisation
then could produce specification for change and then manage and implement solutions?
In my opinion the answer was
staring the audience in the face and several times eminent speakers pointed the way! FIX Protocol is the only independent,
not for profit, organisation in the world that has the depth and breadth of market coverage to understand business and technology
issues throughout the securities industry. It encompasses suppliers vital to designing systems solutions and then implementing
them but just as importantly includes both the buy and sell sides of the industry. Probably the inclusion of the retail market
sector would be required and APCIMS is there waiting in the wings.
The point was made that FPL does not lobby politically.
However, I think that the time has come, where it should step off the fence and get into the faces of the politicians. There
is no need for a mandate! As it is impossible to see who or what would have the necessary knowledge or capability to provide
the mandate. In fact it's important that FPL provides its own mandate, which comes from its membership.
FPL
is the best hope the industry has of implementing its own solutions and taking back the responsibility, which has for decades
been lost to politicians and regulators, finally giving the finance industry real leadership again and the solution has been
in front of us the whole time.
By Gary Wright
