FX Trading, Post-MiFID
Can currency trading still find its voice post-MiFID II?
By Harpal Sandhu, Founder and CEO of Integral
Not long ago, all trading was conducted over the phone between clients and their sales dealer at their bank. The advent of electronic trading has led to the decline, but not the end, of voice trading. However, many fear that the demands for greater transparency and data capture under MiFID II will finish the job. MiFID II requires banks to record and report data not only for completed trades, but also for trades that they only quoted but never executed. This is a major change from current regime where clients pick up the phone, request a price and then if nothing is done, they can simply hang up without documenting the conversation.
The challenge facing banks today is that, despite regulatory pressures to push more currency trading on venue, customers still pick up the phone to discuss the best prices and market conditions, or to access liquidity for complex trades. This was supported in a report earlier this year by Greenwich Associates, which stated that voice communications will play a key role in the electronic trading era. Given this, how can banks undergo a seamless shift from how they carry out voice trading today to comply with MiFID II without any disruption to their business?
It can be done, but most of the solutions banks have been discussing are so cumbersome and disruptive that they are not really viable. But there is an elegant solution to this problem, which involves recording all the required MiFID II data for all trades – voice or electronic, executed or quoted, including a full market snapshot.
Undoubtedly, MiFID II will be a catalyst for significant change in our industry – from unprecedented requirements for data capture and reporting to unintended consequences. As these consequences become clear and regulators begin providing feedback, it will be even more important for organisations and their technology to have the flexibility to respond to, and even take advantage of, this new regime.
With this in mind, and with MiFID II just around the corner, FX trading can still clearly have a voice, but in order to thrive, it has to be integrated with functionality from electronic trading.
Algorithms have become more prevalent in the spot FX market.
Global Foreign Exchange Committee has made recommendations on Last Look.
There is a growing demand for transparency in FX trading by regulators.
CLS has also enhanced its existing suite of alternative FX data products.
FX Global Code sets out good practice for last look and provides illustrative examples.