One of the biggest issues for the buyside in MiFID II, the regulations covering European financial markets from 2018, are the pre- and post-trade transparency requirements according to a webcast from Norton Rose Fulbright.
The law firm held a MiFID II webcast, “Markets for the Buyside”, this month.
MiFID II pre- and post-trade transparency requires trade data to be published via an approved publication arrangement (APA) as soon as possible after execution.
Jonathan Herbst, global head of financial services regulation at Norton Rose Fulbright in London, said on the webcast that one of the big issues is that the European Securities and Markets Authority has not published the detailed transparency requirements.
“There are still questions over who provides data to the APA , how to comply, whether the buyside can have a direct relationship with an APA or should use broker arrangements,” added Herbst. “A big questions is whether the transparency requirements apply to investment firms when they act as both principal and agent.”
The transparency requirements apply at an instrument level so the buyside will need to comply, even for just one relevant trade.
Herbst continued that the buyside will need to have a more organised relationship with the sellside as a result of MiFID II. He said: “The contractual relationship will become more important as to what services can be offered by the sellside and how much the buyside can rely on the sellside to provide reporting.”
FIX Trading Community, the non-profit body that develops and promotes the FIX family of standards, has been holding discussion between all types of market participants to discuss how the industry can implement the MiFID II transparency requirements on a standardised basis.
In June this year FIX announced the development of the FIX Protocol for transmitting MiFID II transaction reports to approved reporting mechanisms. Additionally FIX will be launching a MiFID II compliant version of its market model typology, a data standard for trade classification.
FIX Trading Community recently held a workshop between trading venues and their members to discuss the logistics of the transparency requirements and will be circulating the minutes of the meeting.
Mark Kelly, director of professional services at reporting platform Abide Financial, said on the blog for the BBA, the trade association for the UK banking sector, that the biggest priority for operations desks is meeting trade and transaction reporting requirements under MiFID II according to a recent survey of post-trade professionals.
Kelly wrote: “More specifically, Abide Financial’s clients are increasingly indicating that a key pain point they are faced with is the confusion surrounding the differences between transaction reporting (T+1) and trade reporting via an APA (T0).”
He continued that detailed draft guidance for transaction reporting on the day after execution was published in December last year and so these requirements are understood. “This is not to say that there won’t be challenges – firms with thousands of national identifiers to collect before January 2018 certainly face an uphill struggle,” Kelly added. “But at least the size of the mountain to be climbed is reasonably apparent.”
To qualify as reportable on the day following execution a transaction must involve the trading of an instrument found on the financial instrument reference data index published daily by Esma.
“However, pre- and post-trade transparency requirements to publish trade data via an APA as soon as possible after execution are more controversial, generating fierce debate and polarizing industry opinions,” added Kelly. “This is due in part to the fact that these standards have not benefited from detailed Level 3 guidance.”
In addition to MiFID II, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions issued a consultation paper this week on the harmonisation of critical over-the-counter derivatives data, excluding the unique transaction identifier and the unique product identifier.
The consultation follows the G20’s agreement in 2009 that all OTC derivatives contracts would be reported to trade repositories so that the data can be aggregated to improve transparency, mitigate systemic risk and prevent market abuse.
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