GreySpark Partners, a capital markets consultancy, has warned that banks need to analyse current and potential time synchronisation solutions in order to meet the MiFID II regulations covering financial markets that come into force in the European Union at the beginning of 2018.
In a report, “Mastering MiFID II: Implications for Execution in Investment Banking”, GreySpark said MiFID II’s clock synchronisation rules create a new EU-wide environment in which trading venues and their members have to synchronise their internal clocks to coordinated universal time (UTC), an internationally recognised scientific standard for timekeeping that does not require time zone or daylight saving adjustments.
However the published rules for banks to synchronise their trading systems clocks with those used by trading venues for trade time-stamping purposes are currently inconsistent.
The consultancy said: “GreySpark expects that Regulatory Technical Standard 25 will ultimately be amended by the European Securities and Markets Authority to take into account the need to measure all trades on all trading venues in the lowest-possible latency timeframe, which – for the sake of argument – would be microseconds.”
Banks must also be able to provide Esma with the specifications used to meet the accuracy standard levels on granularity and maximum divergence level compared to UTC.
Pico, which provides multi-asset electronic trading technologies, has expanded its relationship with Corvil, which provides data analytics for electronic trading, in order to provide time sources that are synchronized to UTC and comply with MiFID II. These time sources are used directly by the Corvil platform to create UTC synchronized monitoring, reporting, surveillance, and order-record data management.
David Murray, chief business development officer at Corvil, told Markets Media that the firm’s technology allows clients to track transactions from beginning to end to help optimise their trading performance.
“Close synchronisation becomes more important under MiFID II and clients have used Corvil in latency sensitive environments,” he added.
Clients can see a record of the time of decisions which affect a trade and this data can help them provide evidence that they are meeting the best execution requirements under MiFID II.
Corvil can provide data across multiple asset classes although the equities market has traditionally been more used to monitoring electronic trading. One of the aims of MiFID II is to extend financial regulation from equities into other assets including fixed income and over-the-counter derivatives.
Murray said: “There will be an Increase in electronic trading in fixed income and we expect to expand our fixed income solutions over the next 12 to 18 months.”
As MiFID II moves closer, Murray added that Corvil will continue to add coverage of new trading infrastructures and trading protocols, and provide richer information to help provide business intelligence on where and when best execution can be achieved in the new market structure.
Greyspark said Correlix, Corvil, Endace and Velocimetrics are all technology vendors that provide time-stamping solutions, although each type of system has built-in limitations.
The consultancy advised banks to examine the research that UBS has done with the UK’s National Physical Laboratory to develop a new, RTS 25-compliant commercial service called NPLTime; closely monitor future amendments to e-trading standards, such as the FIX Protocol; analyse and test existing trading systems so they are compatible with upgraded e-trading protocols and APIs, and analyse current and potential time synchronisation solutions.
Greyspark continued that as MiFID II forces banks to shoulder a great deal of the business, operational and technology costs associated with managing these new volumes of data for their buyside clients, they may be forced to charge their buyside clients higher trading fees.The report cited data from the European Commission which has estimated MiFID II will impose one-off costs for the region’s banking sector of between €512m and €732m in addition to annual ongoing costs of between €312m and €586m.
Asif Abdullah, head of GreySpark’s Scotland-based consulting business, said in a statement: “Buyside firms, like banks, also have their own MiFID II trade and transaction reporting-related costs to worry about.”
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