The full scope of the regulatory technical standards (RTS)
under Mifid II are yet to be fully realised by the market, with further work
needed especially on trade reporting requirements, presenting a huge project
for market participants.
Market sources have expressed concern over the slow pace of
work by firms in preparing for trade reporting, with some likely to be left
behind if the September deadline is met as expected.
The final draft of the European Securities and Markets
Authority’s (Esma) Markets in Financial Instruments Directive (Mifid) II RTS is
due in September, with the current go live date for the rules slated for January
While the market has been ramping up preparations, much more
needs to be done, according to a source familiar, “the market is set for a rude
awakening; some firms have some catching up to do on the scope of trade
reporting. This is a huge project and it seems that the wider market is
struggling to understand the breadth of the rules.”
The impending rules under Mifid II present a number of
challenges across reporting and transparency. In a piece for FOW in April, Protiviti's
managing director Bernadine Reese and director Stuart Campbell, said, “The most
significant operational change areas will be transaction reporting, trade
transparency and the effects of changes around product – particularly on
distribution. The new requirements for those who use algorithmic models to
determine investment decisions are also an area of concern.”
Indeed partner at law firm Vedder Price, Sam Tyfield, told
FOW, “There remain a lot of issues around the trade reporting, trading
obligations and authorisation requirements, i.e., what is a liquid instrument, the
difference in definitions between a CDF, equity swap, etc. and what counts as direct
electronic access are important – it remains to be seen what scope particular
requirements will cover.”
Tyfield continued, “The data fields are going to require a
huge amount of work. The main issue I expect to see is that it is very hard to
have market-wide knowledge of regulatory requirements.”
A London-based source welcomed the increase in market preparation
seen of late, though noted, “One thing to consider is the fact that the RTS
could still change, the hope is just that rules do not get any worse for market
Signs of preparation can be seen across the market, but
Tyfield suggested that more work to be done. “There remain a lot of issues
around the trade reporting, trading obligation and authorisation requirements;
what is a liquid instrument, The difference in definitions between a CDF,
equity swap, etc. and what is DEA are important – it remains to be seen what
scope particular requirements will cover.
“There remain a huge number of imponderables; the market
definitely needs more clarity,” he added.
With change comes opportunity; as reported by FOW earlier this week, equities exchange group, Bats Chi-X Europe, is considering an extension
of its equity market trade reporting service to cover OTC derivatives, once the
Mifid II RTS are finalised.
“The market is doing its best to prepare for the impending
swathe of data field and other requirements, but there is more to be done and
more to learn from Brussels and Paris,” said Tyfield, “The news that Bats is
considering an extension of its trade reporting functionality demonstrates
this; the market is working toward changes, but a lot of issues remain.”
Market preparation also includes the recent creation of
regulatory subgroups by standards body FIX Trading Community, to support its
members in meeting the requirements of Esma’s RTS.
FIX has created six groups: Clock Synchronisation; Reference
Data; Transparency; Best Execution; Microstructure; Order Data; and Record
Speaking to FOW on the new support network, Rebecca Healey,
CEO of Incisus Group and co-chair of the EMEA Regulatory Subcommittee, told FOW
last week that more work is required to meet the Mifid II requirements.
“The original Mifid document looked at the bigger themes,
while the level two text looks at how firms should take the text and implement
it, and some unknown elements remain here,” she said.
Esma in July created its own committee to develop and
provide technical advice for the European Commission, with a particular focus
on investor protection and preparing for Mifid rules.
Tyfield welcomed the establishment of the new groups,
stating that the “industry-led initiatives shows the effort that is going into
both interpreting the rules and planning for their implementation, from a both
a practical and systems point of view.
“I think there is a good market understanding that the
technology project that will be required is huge. Organisations such as FIX are
well placed as an independent body to support participants with this,
especially when you consider the granularity of rules that protocols require,”
Looking ahead, as reported by FOW last week, FIX’s Healey warned
that there is a risk that the September deadline may still not be achieved,
“there has been some disquiet in Europe about the latest proposals which could
lead to a date slippage to next year and ultimately further debate, which could
then see a delay to Q1.
“Deadlines have passed before, there is always the
opportunity for a delay. Regardless of
this, firms are now looking at what they can practically do now,” she added.
While the market can speculate about a potential delay to
the September target, Vedder Price’s Tyfield said, “I remain hopeful that we
will see the draft RTS in September as planned; the market is hoping that the
Commission will not come back with extensive comments as that would certainly
cause a delay.”
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