Rather than panicking over MiFID II’s data transparency requirements, what should institutions be doing to ensure their compliance with the directive extends to other obligations as well?
As the most far-reaching regulation affecting trading firms and their clients in a generation, MiFID II will have a significant impact on investor protection, conduct of business, transparency and organizational and infrastructural issues.
But less widely acknowledged has been the reference data requirements outlined in the directive, which comes into force next January.
That said, firms are finding that with some careful adjustments the data sets and infrastructure they already have in place can help them meet many of their new obligations.
MiFID II is broader in scope than its predecessor, which was introduced in 2007 to improve the competitiveness of European markets by creating a single market for investment services and activities, and ensure protection for investors in financial instruments.
For a start, MiFID II extends many of MiFID I’s equities market-focused requirements into non-equity markets.
The most sweeping changes made by the new directive, though, apply to the pre-trade and post-trade transparency regime of EU financial markets.
MiFID II extends the current transparency requirements to other equity-like and non-equity instruments on any trading venue, including multilateral trading facilities and organized trading facilities.
Systematic internalisers and other investment firms that trade over-the-counter in financial instruments will also be subject to expanded pre and post-trade transparency obligations, greatly increasing the need to distribute pre-trade quotes and report transaction data.
Speed and accuracy
The directive mandates a move to faster publishing of post-trade transaction data to local competent authorities, reducing the time delay from three minutes to one minute.
This will increase the need for investment in underlying data architecture and put pressure on firms’ abilities to retrieve supporting reference data from repositories quickly and accurately.
The expansion of MiFID II beyond equity markets extends transparency requirements to sectors such as depository receipts, exchange-traded funds and company certificates.
Reporting in non-equity markets will require transaction-based post-trade transparency, with the provision of price, volume, time of trade and reference characteristics of data remaining the primary reference data considerations, along with codes being created for non-equity based instruments.
Guidance from the European Securities and Markets Authority (ESMA) recommends the use of the machine-readable XML format for transaction reporting.
Under MiFID II, firms must implement common data processes and data quality metrics, which will require the adoption of data standards to ensure consistency of reporting across all regulated activities.
They must also manage multiple identifiers, including the industry standard Market Identifier Codes and Global Legal Entity Identifier.
MiFID II also outlines a framework for market data that includes standards, such as ISINs for securities identification, and will act as a basis for the publication of trade data to a consolidated tape.
This initiative brings with it new requirements around data standardization, availability, quality and timeliness.
Meanwhile, the International Standards Organisation (ISO) has issued updates to some of its standards that may be useful under MiFID II.
Beyond MiFID II
A number of firms already have many of the systems and data sets needed to cover all these bases.
True, they may not be addressing all the areas that MiFID II applies to, but with some homework during the design phase, and by partnering with a trusted data supplier to fill the gaps, firms should be able to meet the deadlines without panicking.
Firms must now look at how they can go beyond MiFID II and address their common obligations under the Fundamental Review of the Trading Book, Packaged Retail & Insurance-based Investment Products and the EU’s General Data Protection Regulation to name but a few.
I am pleased to say we and our partners can help to address them all.