Clarus Financial Technology, the derivatives analytics provider, said there are already “nice use-cases” for data that started being reported under new regulations but there have been teething problems, including a lack of relevant information from regulators.
MiFID II, which went live yesterday, introduced pre- and post-trade transparency requirements for over-the-counter derivatives in the European Union. Clarus has been analysing the new data on a live blog:
https://twitter.com/clarusft/status/948837870181257217
Chris Barnes at Clarus said in the blog: “There are a lot more quotes available for pre-trade transparency than I expected.”
Last August Clarus said 80% of of all euro swaps would not fall under the pre-trade transparency requirements and 75% of risk traded in euro swaps would remain dark for up to four weeks.
Barnes added: “There were far fewer actual trades reported in both euro and sterling swaps.”
He said yesterday that the two euro interest rate swaps reported in the EU was startlingly low compared to more than 450 reported in the US over the same time period. However, there were also quotes for swaptions and inflation swaps in the EU.
Barnes continued: “The data makes the swap data repository data in the US look very good. The sources of data are varied, and usability of the tools varies.”
One issue is that the European Securities and Markets Authority had not published a register of approved publication arrangements (APAs) which publish the required pre- and post-trade transparency reports before MiFID II went live.
Ema had listed just one APA by this afternoon. In addition the transparency calculation results, showing which liquid instruments have to be reported, was not working this morning.
“As we said yesterday, this was all a little bit predictable. Who gets to fine the regulators for failing their MIFID II implementation?” said Barnes.
Another teething problem has been that MiFID II mandated the assignment of International Securities Identification Numbers (ISINs) to over-the-counter derivatives traded on an EU venue.
However Barnes gave the example of a published ISIN being used in quotes for swaps that trade versus Euribor 9 year, despite the fact that this instrument does not exist. As a result quotes (and/or trades) may be reported against a wrong ISIN and if this is corrected there will be a duplicate for the same instrument.
“You cannot aggregate the data if the ISINs are wrong,” Barnes said. “There is clearly no quality control check at the Derivatives Service Bureau looking to see if the ISIN creation makes sense. Euribor 9 year doesn’t exist…..”
The Association of National Numbering Agencies, responsible for issuing ISINs, set up the DSB for MiFID II as an industry utility that operates on a cost-recovery basis.
https://twitter.com/virginieoshea/status/948871904210948097
The DSB said on 14 December last year that 77 entities had submitted contracts in which fees are required, more than double the previous month and 74 firms had registered for free data services.
Malavika Solanki, principal consultant at Etrading Software and management services partner of the DSB, said in a statement at the time: “The increased activity seen in the last month was driven by firms wishing to be in production by mid-December. However, new contracts continue to arrive and are moving through the onboarding process at a steady pace. We look forward to working with industry to further evolve the service and deliver greater operational efficiencies.”
Users created more than 625,000 ISINs after the DSB launched last October for on-demand ISIN generation and retrieval. Initial adopters focused on equity derivatives, with increasing volume of foreign exchange and interest rate products appearing last month.
The ISIN on its own also does not help identity what is being traded. For example, yesterday one APA provided a list of ISINs that have traded so far without any description of the instrument. Barnes said: “I’m not sure if this helps to improve transparency or highlights how useless an ISIN is?”
Clarus needs to cross-reference quoted ISINs with a (usable) APA providing pre-trade quotes to see if there are matches. The firm can provide an ISIN look-up, and include which trading venues are registered to trade the instrument with a short description.
“Much as we cross-referenced US swap data repository data yesterday (for EUR swap prices…because the data is clean, usable and understandable),” Banes said. “These are nice use-cases already for the data”
Clarus have been consuming the public SDR feeds in the US, cleansing and augmenting the data and making it accessible. “We will produce similar for euro and sterling if the right data ever becomes available and usable,” said Barnes.
He complimented the pre-trade transparency report from broker GFI's organised trading facility (OTF), a new MiFID II venue.
“I have nothing bad to say about this. It is clear, usable and very exciting data to have. They should be credited for following the spirit of the law and not just the letter,” added Barnes. “However, I don’t see any other MTF or OTF providing such pre-trade transparency in GBP swaps (or any swaps to be fair!).”