Major regulatory changes put existing businesses in play and open the door for newcomers to overtake established leaders, said Bob Fuller, IT director, IT strategy at Dresdner Kleinwort Wasserstein.

Twenty-five years ago the largest telecoms company in the world was AT&T. When the US courts came through with its divesture ruling, AT&T insisted nothing would change when the Baby Bells were spun off. Last year the tattered remains of the parent company were bought by one of those babies, SBC.

The opportunities and threats from a changing regulatory world are enormous, Fuller added. At Finexpo in London in late January he was speaking primarily about MiFID, the Markets in Financial Instruments Directive from the European Commission.

“But MiFID isn’t the only thing going on,” he added, citing the requirements financial firms face from Sarbanes-Oxley, Basle II, the Patriot Act and SWIFT II.

The results are appearing in sales figures for order management systems. As we will explain in our Spring issue, Charles River Development, Eze Castle, INDATA and Macgregor are all seeing sales rise in the US, Europe, and Asia. (If you don’t already receive WFS, sign up for a free subscription at www.windowsfs.com/subservices.asp.

European firms are facing a problem familiar to American firms after SOX. Politicians think they can legislate anything and leave the markets to sort it out.

“We don’t like it; we wouldn’t have voted for it, but unfortunately we don’t have a veto over it.”

Typically the heaviest task from new regulations falls on IT, and Fuller suggested firms look at America for a view of the future.

Expect industry consolidation, starting with exchanges. America has two; Europe has 40. Clearing and settlement will change too.

“You are not here for a quiet life. Most changes will be IT changes because the business is going to have to change and therefore IT will have to respond to that change, since the business model is based on IT.” He predicted algorithmic trading and a sharp increase in market data and a similar decline in the size of trades will come to Europe as it has to the US.

In North America, many changes in market structure have been built on Microsoft platforms. Most of the latest direct market access firms use Microsoft technology. When NASDAQ retired its Tandem mainframes, it deployed Microsoft SQL Server 2005 to support its Market Data Dissemination System (MDDS). SQL Server 2005 handles about 5,000 transactions per second at market open.

In Europe, the MiFID rules are being driven by Commissioner Charlie McGreevy. An industry expert said McGreevy is such a hard guy to get along with that the Irish kicked him out of the country and into Brussels. That’s probably not good news for financial firms doing business in Europe.

“Charlie McGreevy has more ability to put you in jail than Tony Blair does,” explained Fuller. “Well, not you necessarily, but your CEO.” A trait CEO’s on both sides of the Atlantic share is a reluctance to go to jail. A natural result is that IT initiatives to keep them out of jail tend to get relatively high priority.

That’s assuming the business side understands the threats. Unfortunately, many compliance departments don’t know how to talk to business users, so the business side can sit around in the dark, unaware of the threats, according to Fuller.

Compliance departments need to provide business with a clear view of the threats and opportunities, he added. Finally, Fuller expects that the shifting regulatory environment will see newcomers entering the capital markets arena and taking business away from established players who aren’t acting quickly enough.

Do you see any opportunities here?