-Commitment-based protocols are receiving increas- abstracting from operational details, allow a flexible specing attention as tools for the representation of business interaction ification of business intents and relationships that involve in open MAS. As recent proposals, like 2CL, show when the real- autonomous and heterogeneous parties. This alternative is, for ittryadt oitiboenaml ocdoemlemdiitsmcehnatr-bacatseerdizpedrobtoycaolhs,igwhhdicehgraececoofunretgounlalytiofonr, instance, investigated in [1], which proposes a commitmentthe constitutive specification of actions, are to be enriched with a based approach to the representation of cross-organizational regulative specification. This is the case of the measures foreseen business models by identifying a set of reusable and composby the Markets in Financial Instruments Directive, aimed at able patterns. Such patterns are designed so as to be employed fostering the creation of an integrated financial market within by business analysts in the development of business models tahdeeEcularroapteivaen cUonmiomni.tmThenist-wboarsekdshaopwprsotahcehubseyfualpnpelsysinogf aidtotpotitnhge for desired scenarios. MiFID case study. We developed an extension of Winikoff et al.'s Recent proposals, like [5], [6], enrich commitment proenhanced commitment machine, that accounts of 2CL temporal tocols with temporal regulations. In particular, [5] proposes regulations. It allows the analysis of business protocols and, in a decoupled approach that separates a constitutive and a particular, of the possible violations. regulative specification [7]. A clear separation brings about many advantages, mostly as a consequence of the obtained I. INTRODUCTION modularity: easier re-use of actions, easier customization, easier composition. Roughly speaking, constitutive rules, by identifying certain behaviors as foundational of a certain type of activity, create that activity. They do so by specifying the semantics of actions. Regulative rules contingently constrain a previously constituted activity. In other words, they rule the “flow of activity”, by capturing some important characteristics of how things should be carried on in specific contexts of interaction [8]. This work shows how to use the proposal in [5] to represent and analyze business protocols. We implemented an extension of Winikoff et al.'s commitment machine [9] that can be used to identify potential risks and violations of temporal regulations and of commitments, to foresee the impact on the business protocols of changes in the regulations, and decide about possible regimentation/enforcement policies. Moreover, we applied this tool to a real world case study, the MiFID directive by the European Union, which regulates the interaction of banks, clients, and financial intermediaries in the task of buying/selling financial products. Such parties are characterized by autonomy and heterogeneity, and it is fundamental to define each party's responsibilities in the interaction. Section II introduces the case study. Section II-A explains the challenges involved by it. Section III presents the formal model. Section III-A discusses violations. Section IV presents the MiFID model and analyses execution graphs. Conclusions end the paper.
Business processes often involve autonomous partners with
heterogeneous software designs and implementations. In this
context, there is the need of identifying high-level abstractions
that allow modeling them in a natural way. Moreover, in
many practical contexts (like banking) there is the need to
integrate in such processes specific regulations that constrain
the interaction. In order to minimize the effort needed to
define proper interfaces and to minimize the altering of
internal implementations, Telang and Singh [
One possible alternative is to rely on commitment-based
approaches [
The Markets in Financial Instruments Directive (MiFID
for short) is the directive number 2004/39/EC [
Action Plan, and represents a fundamental step in the creation of an integrated and harmonized financial market within the European Union. Specifically, MiFID specifies values and principles that all the countries will have to follow as well as corresponding implementative measures. One of the main concerns of the directive is the protection of the clients of financial service agencies, thereby it introduces new regulations that financial services must follow so as to guarantee the position of the investor. Three categories of clients are identified, with increasing knowledge about financial products. For each of them, it specifies informative and protective obligations to which the financial operator is bound. For instance, intermediaries are expected to collect information about his/her clients, with the help of detailed tests. Each country in the European Union implements European directives in ways that are customized to its specific structures and organization. In Italy, the adjustment of the market regulation to the MiFID principles and implementative measures is up to two actors: Consob (Commissione Nazionale per le Societa` e la Borsa) and Banca d’Italia.
One of the main characteristics of MiFID is a great attention
to clients. At any moment, the intermediary must guarantee the
investor the control of the contractual relation for all aspects
ranging from the proposed financial products to the strategies
that will be enacted to obtain the most beneficial results for the
client. Therefore, MiFID imposes strong constraints to
investment companies, and gives investors the tools for legally acting
against those intermediaries who do not comply to them. The
case study we use in this proposal concerns the regulation that
applies to the offer of investment services off-site. This case
study is already used in the literature [
card or equivalent document; Qualification: the intermediary supplies all the foreseen documentation about his/her professional qualification and the rules that he/she must stick to; Profiling: the intermediary must profile the client, gathering information about the balance sheet, knowledge about financial subjects, investment aims. This phase requires the filling the MiFID form, which explicitly specifies the resulting category of client and which is to be signed also by the client; Selection: the proposed financial products must agree with the client’s profile. This requires that financial products are classified w.r.t. the different client profiles; Evaluation: the proposal is evaluated through a simulation: if it is adequate an order is filled and signed both by the client and by the intermediary, otherwise the product is discarded; Verification: the documentation is sent to the investment trust, which must check that there are no errors or missing data. In this case, the documentation is corrected and sent back to the intermediary, otherwise the contract is stamped and sent to the client.
Withdrawal: The client can decide to cancel an order.
Due to the high degree of regulation imposed by the directive, an intermediary can incur into many forms of violations. For instance, when the mandate contract is stipulated, the client should receive a signed copy of it. By this contract the client commissions the intermediary to use some financial holdings so as to achieve some investment goals. One common violation, that occurs in this phase, is that the intermediary does not give to the client copy of the documentation foreseen by the qualification phase. Another common violation is that often intermediaries do not ask their clients to sign the MiFID form for the definition of the client’s profile. The motivation behind both these behaviors is that intermediaries believe that a great amount of documents to sign will refrain clients from stipulating contracts and will even compel them to consult some competitor. Indeed, investors tend to be unwilling to study in depth the proposed products, and often prefer to have just an overall idea. A third kind of violation, with similar motivations, amounts to the proposal of a financial products that does not agree with the client’s profile, without an explicit and formalized agreement with the client.
What happens if, despite these violations, an intermediary
buys a financial product for the client? Even though, standing
to MiFID, the intermediary did not fulfill all of his/her
obligations, the sale is valid, the client results to be the owner
of the product. This happens because MiFID does not define
sales (sales are defined by a different regulation) but dictates
how the interaction with the client should be carried on by
adding a new layer of regulations on top of existing ones. So,
the violation of some constraint does not affect the sale directly
but creates both a risk of sanction and an exposure risk for
the intermediary. This is witnessed by a sentence by the Italian
Supreme Court (Cassazione civile a sezioni unite, num. 26724
and 26725 [
These observations show the importance of putting the
business analyst in condition to study the possible violations,
in the context of a regulation, with the aim of identifying
the risks the interaction could encounter. The evaluation of
such risks will allow the definition of operational strategies
which can, alternatively, prevent the occurrence of violations
(regimentation) or implement alerting mechanisms
(enforcement) [
In particular, the MiFID case study underlines the need of adopting a representation model that accommodates both a constitutive and a regulative specification. MiFID is designed for regulating interactions of clients, intermediaries, and financial trusts (regulative specification) that involve the exertion of powers, like that of sale or of profiling, which constitute the reality in which the three parties interact (constitutive specification). Part of these powers (like profiling a client) are defined inside the directive itself, part (like sale) are recognized but pre-exist the regulation. The latter are particularly delicate because, since they already exist before the new regulation is defined, it is not possible to constrain their execution, e.g., by adding preconditions of executability. As the sentence by the Supreme Court that we cited shows, the violation of a constraint, posed by MiFID, does not invalidate a sale. Depending on the kind of violation that occurred, the ownership of the financial product will remain of the client or it will be transfered to the intermediary, but this will be transparent to the seller, who will not be involved in the quarrel and will have no consequences (specifically he/she will not have to give money back). These observations underline the need of adopting a modular representation that accounts for both specifications.
Another important remark is that in many practical contexts, the MiFID case is one of them, the business relationship captured by a regulation should be kept as flexible as possible, in order to allow the interacting parties, who are heterogeneous, autonomous, and basically self-interested entities, to find the way of interacting that better suits their characteristics and needs. In other words, any interaction that does not violate the constraints should be allowed. Flexibility is important to allow the business partners to profit of opportunities or to make the most efficient use of their time that is possible. As an intuitive example, let us consider the case of financial products classification. What MiFID requires is that financial products are classified according to the types of client profiles. It does not say when this classification should be done. A business process that imposes that classification must be done in the evaluation phase surely respects the directive, however, it precludes the possibility to classify products in those moments when the intermediary is free and have them ready when a client arrives.
Most of the approaches specify business processes as
procedures, that implement a selection of some of the possible
execution paths. Even though in this way the resulting business
process will comply to the directive, it will also implement
further restrictions to the interaction that the directive does not
impose. Commitment-based representations, instead, offer the
degree of flexibility requested in these cases because they can
capture the intent of a business relationship [
In this work we adopt a representation of the business
protocol, i.e. of the specification of how the business interaction
should be carried out, based on commitments. In particular, we
adopt the approach discussed in [
Definition 1 (Business protocol): A business protocol P is a tuple hRo; F; A; Ci, where Ro is a set of roles, identifying the interacting parties, F is a set of literals (including commitments) that can occur in the social state, A is a set of actions, and C is a set of constraints.
The set of social actions A, defined on F and on Ro, forms the constitutive specification of the protocol, while the set of constraints C, defined on F and on Ro too, forms the regulative specification of the protocol. We assume that facts persist in the social state, they denote observations about events that occurred.
Constitutive specification. The constitutive specification of
actions is given by defining their meaning in terms of how they
affect the social state. The specification follows the grammar
below, where the means construct amounts to a counts-as
relation [
A ! (Action means Operation if Cond)+ Action ! protocolAction Operation ! Op(commitment) j f act j
Operation ^ Operation Op ! CREATE j DELETE j RELEASE j DELEGATE j
ASSIGN j ...
Cond ! literal j Cond ^ Cond j Cond _ Cond j
Cond XOR Cond
where protocolAction is the name of an action of the protocol;
Cond specifies the context in which the counts-as relation
holds; Op is one of the operations on commitments;
commitment is a commitment of form C(x; y; r; p) (see [15, page
neg.
A 6 . B
executions which satisfy the constraints of interest. The work
in [
Meaning If A occurs, B must hold at least once afterwards (or in the same state). It does not matter if B already held before A.
If A holds, B cannot hold in the same state or after.
B cannot hold until A becomes true. Afterwards, it is not necessary that B becomes true.
In case B becomes true, A cannot hold beforehand.
It is the conjunction of the base response and base before relations: A . B and A . B.
It is the conjunction of the base response and base before negative relations: A 6 . B and
A 6 . B.
pos. A . B The interaction of a set of parties will be compliant to a busiBefore ness protocol when all the commitments they have towards the neg. A 6 . B others, and that are objectively inferable from their observable behavior, are satisfied (as usual in the social approach), and pos. A . B the overall execution respects all the constraints. Intuitively, Cause the addition of a regulative specification by means of 2CL neg. A 6 . B constraints restricts the set of acceptable executions.
Some approaches to commitment protocols propose an
operational semantics that relies on commitment machines
to specify and execute protocols [
TABLE I some others, like [
C ! (Cond op Cond) tbhyatmiesanasccoefpt2eCdLbyregtuhleaticvoemsmpeitcmifiecnattiomnasc,hiisneanbueixletcuutpioonn
C, see Def. 1, is a set of constraints of the form A op B, the constitutive specification of the protocol, and that, when
where A and B are formulas of literals and op is one of interpreted as a linear temporal model, satisfies the LTL
the operators supplied by the language. The complete list of formulas corresponding to the regulative specification of the
possible operators is fully described in [
We implemented an extension of Winikoff et al.’s enhanced
commitment machine [
The output of the commitment machine will be an annotated and colored graph of all the possible interactions (it is a reachability graph). The graph includes all the interactions that are possible, considering only the constitutive specification of the actions. The annotation, highlighted by graphical conventions, accounts for all the regulative aspects, concerning both commitments and constraints. So the graph will include both legal states and states in which violations occur. Part of violations related to a state are, actually, just potential, depending on future behavior. Tendentiously they become violations if the interaction stops in that state. As usual in commitment protocols interaction can, in fact, start/end in any state. In this case, highlighting the possible violations, therefore, amounts to alerting the user about a risk. More generally, the obtained graph is a tool that supports the analysis of a business protocol, by helping the identification of situations where it maybe necessary to perform some regimentation or enforcement.
Let us begin this section by introducing the business protocol of the sales of financial products as they used to be before the MiFID directive. The specification will include just a set of constitutive rules defining the necessary actions. No particular constrain is imposed to regulate the interaction. Afterwards, we will see how it is possible to introduce the MiFID specification, in a way that is modular w.r.t. the preMiFID one. The resulting business protocol will include new constitutive rules, aimed at specifying those activities that were introduced by the directive (like the profiling), and a set of regulative rules. Such rules tie the activities of a basic sale to those foreseen by the directive. In particular, that an intermediary, who committed to take care of an investment supplies the necessary documentation, and that this as well as the classification of the possible products happen before the proposal of an adequate solution. The regulative constraints will implement this connection without the need of modifying the specification of the sales actions.
Pre-MiFID sale business protocol. This business protocol foresees an initial state containing a commitment, C(f p; inv; invested), from the intermediary to the investor to find a good investment. The actions involve three parties:
an investor (inv), an intermediary (the financial promoter f p), and a bank (bank). The action propose solution presents a selected financial product to the investor. The proposal is characterized by a risk level, and can be rejected (reject proposal) or accepted (sign order). In the first case, the commitment of the intermediary is released. When the order is signed, the investor commits to the bank to respect the purchase contract (C(inv; bank; contract ended)). The bank is expected to send a copy of the contract to the investor by the action send contract, which creates a commitment C(bank; inv; executed order) from the bank to the investor to actually execute the order. When the bank sends copy of the contract to the investor, the initial commitment of the intermediary is discharged. The natural end of the contract is captured by the action end which causes the discharge of the pending commitments of the investor and of the bank. (a) propose solution means proposed RiskL
if :proposed RiskL ^ :rejected proposal. (b) reject proposal means rejected proposal,
RELEASE(C(fp, inv, invested)) if :accepted proposal ^ proposed RiskL ^ :rejected proposal. (c) sign order means CREATE(C(inv, bank, contract ended)), accepted proposal, order signed if :order signed ^ proposed RiskL ^ :rejected proposal. (d) send contract means CREATE(C(bank, inv, executed order)), invested, contract sent if :contract sent ^ order signed. (e) end means executed order, contract ended if contract sent ^ :contract ended ^ :contract abort.
Figure 1 shows the graph of the possible executions for this protocol. For reducing the complexity of the graph and make it readable we added a few preconditions to avoid the depiction of those paths where a same action is repeated. The same is done also with the graphs for MiFID.
Introduction of MiFID. This directive introduces new regulations that financial services must follow in their interaction with the client, so as to protect the investor. Its application requires the enrichment of the business protocol with new, specific actions, aimed at: identifying the investor and supplying the foreseen documentation (interview), profiling the investor (profile) and assigning him/her a risk category (investor classified), classifying the financial products according to the possible risk levels (classif y). In the profiling process, the intermediary commits to evaluate, with the help of a simulation, financial products in order to identify one that suits the client (C(f p; inv; evaluation)). Such evaluation (fi evaluation) commits the intermediary to propose a product with an risk level, that is adequate to the investor’s profile (C(f p; inv; proposed RiskL)). This commitment is crucial to satisfy the MiFID’s requirements. A solution that is not adequate can be discarded (fi discard). In this case the intermediary’s commitments will be canceled. The withdrawal phase of MiFID is implemented by the action withdraw, which concludes a contract by aborting it and by releasing the commitment from the bank to execute the order. The selection and evaluation of a new proposal are modeled as a new interaction. (f) interview means investor identified, document supplied if :investor identified ^ :contract abort ^ :contract ended ^ :rejected proposal ^ :fi discarded. (g) profile means CREATE(C(fp, inv, evaluation)), investor classified if :investor classified ^ investor identified ^ :contract ended ^ :contract abort ^ :rejected proposal ^ :fi discarded. (h) classify means classified if :classified ^ :contract abort ^ :contract ended ^
:rejected proposal ^ :fi discarded ^ :proposed RiskL. (i) fi evaluation means CREATE(C(fp, inv, proposed RiskL)), evaluation if classified ^ investor identified ^ :evaluation ^ :contract abort ^ :contract ended ^ :rejected proposal ^ :fi discarded. (j) fi discard means fi discarded, CANCEL(C(fp, inv, invested)),
CANCEL(C(fp, inv, proposed RiskL)) if evaluation ^ :proposed RiskL ^ :contract abort ^
:contract ended ^ :fi discarded. (k) order verification means order verified,
CREATE(C(bank, inv, executed order)) if :order verified ^ order signed. (l) withdraw means contract abort,
RELEASE(C(bank, inv, executed order)),
CANCEL(C(inv, bank, contract ended)) if contract sent ^ :contract ended ^ :contract abort.
Adding only the specific MiFID actions, and the commitment (produced by fi evaluation) by the intermediary to propose a product with a risk level that corresponds to that of the investor are not enough to implement the directive. Actions (f–j) should be executed before the actual sale occurs, while (k) and (l) complete the sales process (see Section II). This could be done by modifying the action that implement a sale but this is not in the powers of the MiFID regulation, as we have explained. This directive, in fact, is to be composed with the definition of sale. In this setting, in order to analyze the violations that could take place in real intermediation contexts, the business protocol must show the same degree of flexibility that intermediaries and banks have when dealing with their clients. The integration of the new directive with the previous regulation is, therefore, done by means of a set of 2CL constraints, which relate facts and commitments which can appear in the social state and, in particular, those pertaining MiFID and those pertaining sales. Hereafter are reported the 2CL constraints that capture the most relevant dictates of the MiFID regulation: (c1) C(f p; inv; invested) . investor identif ied^
document supplied (c2) investor classif ied . C(f p; inv; propose riskL) (c3) evaluation ^ :f i discarded . proposed RiskL (c4) order verif ied . contract sent
(c1) states that once the intermediary took the commitment to serve the investor, he/she must have the investor identified and must supply the necessary documentation to him/her. (c2) expresses the fact that before committing to propose a solution with a certain degree of risk, the investor must have been classified. (c3) states that before proposing a financial product it is necessary to have it positively evaluated by the simulation.
Finally, before the contract is sent to the client the data of the order must have been verified by the bank. Figure 2 gives an idea of the embedding of MiFID inside the sales protocol: the pink part corresponds to the old sales protocol, the green and gray parts altogether correspond to the legal execution of the enriched protocol.
Analysis of the MiFID business protocol. The MiFID business protocol produces the graph in Figure 2. Each state in the graph represents a possible configuration of the social state. Arrows correspond to actions and are directed. The source is a state where the “if” condition of the action labeling the arc holds. The target is, instead, the state obtained by applying the meaning of the executed action to the source state. States that are drawn as diamonds with an incoming red arrow represent the fact that a before constraint has been violated. Some states are yellow, the meaning (independently from the shape) is that some response constraints are not fulfilled yet. White states (independently from the shape) mean that there are some active commitments (not discharged, released or canceled). Final acceptable states are white and are denoted by double circles.
Figure 2 shows most of the possible executions of the MiFID business protocol. Among them, it is, first of all, worthwhile to notice the part highlighted in pink. This part corresponds to the pre-MiFID interaction but the colors show that in presence of the new directive, this kind of interaction is totally illegal. The other parts that are worthwhile to notice are the ones respectively highlighted in gray and in green. The green part corresponds again to the pre-MiFID interaction but now immersed in the additional activities foreseen by MiFID. The gray part at the beginning amounts to the identification, qualification, profiling and evaluation phases. The little gray parts in the bottom correspond to the new MiFID activities of verification (by the bank) and withdrawal, that the client can execute. These two activities naturally find their correct place inside the sales interaction. The colors also help to highlight the modular composition of the regulations. All other paths amount to possible violations, as expected since we aggregated actions that have no mutual preconditions. The designer, by analyzing the graph, can identify the points where it could be helpful to intervene to reduce the possible violations, for instance, by applying enforcement policies or by regimenting some steps. For example, in Figure 2, one action on which it would make sense to intervene is propose solution by adding the condition :fi discarded ^ evaluation, obtaining the graph in Figure 3. Of course, this choice depends on many factors (e.g. the cost of the implementation of the prospected solution, or the time needed to update the financial services office’s software) that are out of the scope of the directive.
We have proposed a declarative approach to business
protocol specification that extends [
Telang and Singh [
Recently, many works, like [
Another work that it is worthwhile to mention, even though
it does not directly tackle business processes and regulations,
is [
Acknowledgements: This research has partially been funded by “Regione Piemonte” through the project ICT4LAW.