The EMSA recommendation of a one-year delay to MiFID compliance has done little to stem the ongoing flood of concern about trade reporting. While attendees at two key London conferences in December agreed that while project delays at their firms are likely, it was accepted that the regulatory programme would inevitably move forward.
Participants continue to point out the difference between EMIR and MiFIR reporting, clearly identifying that MiFIR is all about market surveillance and does not include lifecycle data, instead being more transaction focused. EMIR is about systemic risk and therefore cares about the full trade lifecycle, not just the details on clearing and settlement that impact the eventual market exposures.
The first event, “Measuring the Impact of MiFIR / MiFID II”, focused on the understanding and interpretation of regulations, while the second targeted trade and transaction reporting, so it fit right into the focus of our .trade solutions – Validate.Trade for data validation, Reportable.Trade for reporting eligibility and reconciliation and Load.trade for reporting trades into the ARM or NCA, as is allowed under MiFIR.
Firstly, on the delay, the regulators were quick to point out that it would be some time before this was set in stone as it requires the European Commission and the European Parliament to vote on any amendments.
A primary issue for market participants remains ‘non-equity transparency trade reporting’. Under MiFIR, investment firms will be required to report details of trades, in near real-time, based on a number of tests, including whether it is subject to any waivers due to size or liquidity, a major concern of financial firms. Little guidance on this is currently available.
Firms are also concerned about the sources of data and what will be considered the Golden Source. The regulators did not seem keen to volunteer themselves for this role.
Discussion also dwelled on financial counterparties that currently avoid MIFID I regulation under the 1722 “Reliance” exemption. MIFID II/MiFIR removes this exemption and there was concern smaller firms will now face the full burden of European regulation and be forced to look for additional support from their dealers.
The real issues
I represented Risk Focus on a “Pre and Post Trade Transparency” panel. While other panelists focused on the interpretation and timing of regulations, I stuck to the technical solution requirements, which center on time constraints, lack of clarity, and the impact to a firm’s business practices and processes.
Our main point is that meeting the regulatory demands in any reasonable timeframe is going to require an agile and flexible approach. The industry trend that we have seen of moving to loosely coupled, component-based architectures will benefit firms as they are required to integrate new products into existing process flows (MiFID I) and integrate new and dynamic data sources into their organizations (e.g. the much discussed liquidity threshold data).
Two points of concern were raised by those responsible for delivering their firms MiFIR platform
- MiFIR was different enough to EMIR in content and objective, and;
- The data would likely come from a different place in the process flow and different systems to those used to satisfy EMIR
If this is the case, then it may make re-use difficult and increase the cost of delivering MiFIR in general.
It’s all in the data
As always the issue of data quality and validation was a common theme in both conferences. Under MiFID II, the number of data fields required by the regulators is increasing substantially. Under the RTS it has been set at 65. However, experts confirmed that additional control fields that were dropped out of the latest RTS would definitely be required and would likely form part of the API specification for leading ARM’s.
MiFIR is focused on financial instruments admitted to or traded on a regulated trading venue, thus pure OTC instruments are excluded. Common ground between these regimes includes instrument and product ID’s and reporting entity ID’s i.e. the dreaded LEI that will be mandatory for MiFIR reporting.
Ian Rennie, a leading voice on control frameworks was invited to speak and to join one of the panels and clearly articulated the need for firms to invest wisely in their upfront builds and process definitions — adding the controls after the fact would be risky and expensive.
Risk Focus leadership
Andy Green, the newest representative of the Risk Focus leadership team, spoke about the impact of the trade and transaction reporting obligations to the buy-side. MiFIR imposes significant overheads on the buy-side that did not exist under MiFID and were delegated away under EMIR. The majority of participants at the conference agreed that delegation in its current form would not be feasible for MiFIR reporting, although the regulation does allow for it. The personal data required to complete the reports has meant that many firms have already stated that they would prefer to self-report and not have to share data such as passport and national insurance numbers with their brokers.
In conclusion, the consensus in the industry is that reporting requirements are inevitable, and that firms needs to move forward with implementation now, even though the regulatory deadlines remain unclear. To delay is both risky and potentially more costly.
– Lloyd Altman, Global Head of Validate.Trade