A MiFID II briefing for buy-side clients has highlighted the implementation challenges as well as the solutions on offer to ensure compliance.
For buy-side firms, the imminent arrival of MiFID II has triggered not just a major implementation effort but also a re-assessment of business models.
Major challenges for buy-side firms include:
- How to source all of the necessary data and content.
- How to assess, demonstrate and report on best execution.
- Develop processes to value, access and pay for research.
Our expert panel, which included Daniel Page, the Head of Asset Management at KPMG Ireland, examined some of these challenges at a recent breakfast briefing.
At this critical point for MiFID II preparations, they offered some reassurance that it is possible to continue the running of enterprises while conforming to the regulations.
Two of the major issues discussed at the breakfast briefing concerned transaction reporting requirements and the challenge of research unbundling.
Ozan Tuzunalper, Market Development Manager, Enterprise & Risk, said the analytical and reporting requirements of MiFID II increased transparency in the marketplace, but also provided additional obstacles for buy-side firms if they fail to properly report their trading activities.
Furthermore, MiFID II will put new standards in place regarding the reporting and exchange of reference data, which will determine the eligibility of an instrument, the timing of reporting requirements based on liquidity and size, and whether a trade needs to be reported at all.
Lack of compliance with MiFID II reference data requirements or inaccurate reporting of reference data could result in detrimental barriers to trade for the buy-side.
To address these reporting concerns, Tuzunalper discussed our Tradeweb partnership, which provides APA services for pre and post-trading reporting.
He also referred to the Velocity Analytics suite, which assists the buy-side with best execution reporting and transaction cost analysis through its integrated database.
The biggest impact of MiFID II on buy-side firms is likely to revolve around research, as new regulations call for the unbundling of research from execution.
This means asset managers and wealth managers will no longer be able to pay for research with trading commissions.
Jamie Coombs, Market Development Manager, Investing & Advisory, said: “Asset managers will be required to define a research budget in advance, which will be paid for out of the firm’s own resources.”
These new requirements raise questions regarding how firms will pay for research going forward and how to ensure they receive accurate and quality research services from brokers while still adhering to MiFID II requirements.
This involves improving the rate of research discovery, evaluating the quality of in-house analysts, and creating a research valuation framework to ensure quality and track readership.
Jamie guided the audience through potential strategies to help the buy-side manage, track and optimize research consumption, including systems that assist the buy-side in ensuring quality and compliant research.
StarMine provides objective sell-side analyst evaluation through accuracy rankings and allows users to block research from specific brokers if they are not compliant with MiFID II requirements.