FCA to Begin MiFID II Testing

Shanny Basar

The UK Financial Conduct Authority has developed a new market data processor system to receive, ingest or transfer market data, in line with new regulations and will begin industry testing for transaction reporting from July.

MiFID II, new regulations covering European Union financial markets from 3 January 2018, involves large changes in the volumes and range of data that entities have to report to national regulators. The FCA said it had developed a market data processor (MDP) system to help manage this data and firms need to follow the regulator’s on-boarding process and timetable to be ready for the new regulatory regime.

Firms who were an Approved Reporting Mechanism for transaction reporting under MiFID I for transaction reporting need to obtain a new authorisation as an ARM under MiFID II.

The FCA said: “In preparation for MiFID II, ARMs need to establish technical links with the MDP and undertake industry testing from July 2017. ARMs must successfully complete MDP on-boarding in order to become authorised, with ARMs now requiring authorisation being one of the changes introduced by MiFID II.”

In addition, counterparties required to send transaction reports under MiFID II also need to decide whether they will submit their reports to the FCA through an ARM. If they decide not to use an ARM, but instead to report directly to the FCA, they also need to start the MDP on-boarding process now so they are ready to submit direct reports in January.

Mark Kelly, director of professional services at Abide Financial, told Markets Media that the reporting platform has been testing client data already to ensure that it passes the required validation tests before being to the regulator.

Abide Financial was acquired by Icap and is now part of Nex Group, a specialist operator of electronic markets and post-trade services. NEX has launched a regulatory reporting business powered by Abide which can take data from any source system and enrich and validate the data to ensure it meets regulatory reporting requirement, as well as provide reports of any exceptions.

“We are confident on  the core reporting service as The European Securities and Markets Authority provided a very good validation spreadsheet on the type of information needed for each field,” added Kelly.

However the industry is still waiting for some reference data, such as the identifications codes for firms who choose to voluntarily become systematic internalisers.

In April the FCA approved Trax, the provider of capital market data, trade matching and regulatory reporting services, to begin testing its Approved Reporting Mechanism.

Chris Smith, Trax

Chris Smith, Trax

Chris Smith, head of Trax, said in a statement: “We have been actively working with clients since 2016 to help them test their MiFID II reporting capabilities in the lead up to the January 2018 implementation date.  Having our ARM approved for MDP testing by the FCA is an essential milestone in the validation and testing process.”

The FCA’s industry test environment lasts from 1 July 2017 to 31 December 2017. The test environment will continue to be available beyond the MiFID II implementation date to support new entrants wishing to connect and other change projects.

“In this period all submitting entities seeking to demonstrate conformance and compliance with the FCA’s technical specification from 3 January 2018 will be on-boarded on to the MDP,” said the regulator. “The successful on-boarding will form part of our authorisation and supervisory process for submitting entities.”

The FCA said the MDP system will receive MiFID II market data from the UK financial industry and also market data, where applicable, from non-UK market participants in the European Economic Area. In addition, Approved Publication Arrangements which publish price information will submit data to the MDP.

Tradeweb Markets, which provides fixed income, derivatives and ETF trading platforms, said this month that BNP Paribas, Credit Suisse, Morgan Stanley and Societe Generale are among the latest clients to join its APA service.

Simon Maisey, global head of business development at Tradeweb, said in a statement that the banks’ flow business will be aggregated and give a complete view of the reported market activity. He said: “We are also working closely with lead order management systems to ensure that the buyside clients we are engaged with benefit from a seamless and standardized workflow.”

He continued that regulators are providing more clarity around pre-trade reporting obligations, such as Esma’s published standards on  the treatment of package orders. “We therefore expect that, despite the delay to the systematic internalised regime to September 2018, market demand for a holistic reporting solution will continue to accelerate,” Maisey added.

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