Channel must help financial sector comply

Tony Moulange says 2012 will see financial customers working harder to comply with new laws yet still profit

It seems regulators finally flexed their muscles this year, with the Financial Services Authority (FSA) handing out a record £6m fine to a private investor for market abuse. But have all financial institutions really got the message?

The high-speed trading culture means growth in cross-product, cross-market trade volumes and continued debate about how the industry should be regulated. And in 2011, we have seen financial sector institutions fail to keep up with regulatory changes in the market.

US-headquartered derivatives marketplace CME Group charged a trading firm $850,000 (£544,893) recently for an algorithm that went wild and resulted in large numbers of oil futures being purchased in quick succession.

Most leading investment banks, exchanges and brokerage firms are moving to comply with pending regulations such as the Dodd-Frank Act in the US and the EU's Markets in Financial Instruments Regulation (MiFIR), which comes into force in 2013.

Unlike its predecessor, MiFID, this is a regulation and not a directive to financial institutions. It will take at least a year for financial sector organisations to realign their trading strategies, so this must now be a priority for them.

Trading and clearing activities will also become even more competitive when MiFIR comes into force, particularly in the fragmented equities market with its several trading platforms.

When there is more competition in providing market infrastructure, you need a consistent regulatory approach to ensure trading standards are maintained.

Regulations such as MiFIR will see organisations forced to trade exotic products, including interest rate swaps and collateralised debt obligations, with an increased requirement for transparency and reporting.

This is before any new prices and reporting traffic come out of the exchange. Such regulations will trigger even more market data flows in the world's financial markets in 2012.

Meanwhile, many leading financial institutions are looking to improve connectivity in new markets to minimise latency during transactions.

Tony Moulange is senior business development manager at Colt