'Luddite' firms caught out by share shake-up

Despite three years' warning, many City players aren't ready for radical European rule changes

City firms will this week brace themselves for the biggest shake-up of share-trading rules in Europe for two decades.

More than three years in the making, the controversial Markets in Financial Instruments Directive (Mifid) becomes effective on 1 November, with many Square Mile institutions fearful of its impact amid a likely flood of red tape.

It is thought firms have spent billions of pounds seeking to comply with the directive, the purpose of which is to create a single market and regulatory regime for investment services across Europe. It will make it easier to trade shares listed on one European exchange on others.

Analysts have predicted that Mifid could harm the pre-eminence of national markets such as the London Stock Exchange, with a wave of further cross-country consolidation among bourses likely.

However, many British companies are likely to be under-prepared, with firms on the Continent believed to be in an even worse position. A survey by the London-based firm EA Consulting last week showed that 93 per cent of institutions affected didn't believe that the directive would be properly implemented or policed.

Alan Jenkins, European head of Mifid at the consultants BearingPoint, said: "Most of the major players have ploughed big investments into this and will be ready. The same cannot be said of lots of small and medium-sized firms who have largely adopted a head- in-the-sand or frankly Luddite approach."

Mr Jenkins said that while the impact of Thursday's "starting gun" would be felt mainly by businesses, the average punter would soon feel the influence of Mifid too. "The man on the street who uses a stockbroker will see their terms of business change – execution policy is going to be a real competitive weapon."