What are MiFID II’s Reporting Lessons?
MiFID II one year on – what are the data reporting lessons to be learned?
By Volker Lainer, VP of Product Management at GoldenSource
Where did that year go? It seems like only yesterday that market participants throughout Europe were frantically making alterations to their trading systems and processes in a last-minute scramble to be ready for MiFID II.
In hindsight, it is not hard to see why so many firms went down to the wire. The regulatory technical standards (RTS) were continually changing as late as Q3 last year. As such, banks, brokers and fund managers alike were backed into a corner and had no choice but to adopt sticking plaster solutions. To be fair, for the purposes of meeting MiFID II’s transparency demands, this approach appears to have worked. Take something that was new to everyone – trade and transaction reporting. Things may not be perfect, but the majority of firms can at least justify to local regulators that they are doing their level best to come up with high quality reporting.
But while everyone has seemingly found a way just to get by, there are more than a few cracks starting to emerge. It has come to light that what has proved to be suitable for MiFID II, is not going to cut the mustard for future compliance challenges. Many of the existing costs with respect to data and architecture are starting to spiral out of control. As such, there is now an industry wide push to lower the cost of ownership ahead of other regulations coming into play. And from the MiFID equivalent for securities financing (SFTR ), to further revisions to EMIR, there is no shortage of new rules to get to grips with. Given the copious amount of resources already spent on new technology to manage, collate, and provide data to reporting services for MiFID II, financial institutions do not want history repeating itself.
To ensure the pre-January 2018 pain doesn’t return, regulatory reporting platforms need to be scalable to serve as the operational basis for meeting new requirements. However, with so many firms now immersed in the band aid approach, how does the industry change course to keep compliance costs low? Well, to start with, financial institutions first need to sift through the information between their MiFID II systems and marry the right data with whatever the new compliance demands. This can be achieved by adopting a platform which marks the instruments and issuers which fall under MiFID II, allowing the right information to flow into different business units. Indeed, many working within these divisions will welcome any detail on customers that can help them steal a march on rival banks.
So as the candle blows out on MiFID II’s inaugural year, it is clear firms on both the sell- and buy-side can ill afford to sit and ponder what to do next. With new regulatory headaches pending, financial institutions face the daunting prospect of collating and reporting on even more detail. With this in mind, it is surely high time for market participants to view regulation not as a need to do, but as a long-term opportunity to reduce total cost of ownership (TCO). Ultimately, those that adopt this approach won’t just keep bottom line costs down, they will be able to use intel gleaned from the data to create new financial instruments to boost trading revenues.
There are three key areas where action is required.
Some material changes have come out of ESMA’s review of algorithmic trading.
A consolidated tape will significantly improve transparency and create a level playing field.
AFME said there should be mandatory free data contribution to the consolidated tape.
The review is an opportunity to recalibrate MiFID II regulations post-Brexit.