Ed Royan, AxiomSL
"Transaction reporting is likely to be the most challenging aspect of MiFID II..."
ESMA published its draft RTS for MiFID II/MiFIR. It will translate how legislation will apply in practice to market participants, market infrastructures and national supervisors.
Comment from Guy Warren, CEO, ITRS:
"A lot of people are saying MiFID is about transparency, but it's also about speed - a lot of the technical standards are about pushing the industry towards having real-time as the norm across a lot more systems than before.
'New trade reporting requirements mean that you effectively need to be aiming for one-minute reporting so that you can be sure you'll hit the requirement of five minutes across all the instruments you now need to report on.
"Timeliness has really come to the fore. To avoid fines and stay compliant your reporting engine is now as critical as your trading engine."
'It's interesting to see ESMA mandating a kill-switch for trading entities, and that's really the spectre of the Flash Crash looming large.
"No-one wants to see a repeat scenario, but a real-time human kill-switch is difficult - people aren't quick enough to spot and stop a flash crash! This will probably mean an automatic system that holds a trade outside normal parameters until a human trader can either pull it or push it through.
"Again, this means real-time is the real focus of the technical standards - you can't stop a flash crash if that system is operating with high latency."
Paris unleashes 2,500 pages - JWG Group:
ESMA's technical standards have left implementation teams across the industry with hundreds of pages to get to grips with. The publication confirms that MiFID II will represent the biggest change to the regulatory framework in living memory. It represents an extremely complex puzzle, but at least now we have one of the corner pieces on the table.
These regulatory technical and implementing standards (which essentially cover everything other than investor protection) run to 552 pages - and every word counts - so clearly some time is needed to digest it all. On top of this, ESMA published technical standards for MAD/R and CSDR, both of which have key points of crossover with MiFID II, meaning a total headache-inducing 2505 pages were published in one day.
The good news is that, in key areas such as transaction reporting (where we remain with 65 fields), today's new text doesn't look too far away from the version that the industry has been working from since the summer. However, there are still areas of change, and how all of this will fit in with the as-yet-unpublished delegated acts remains a mystery.
Comment from Brian Lynch, CEO of Risk Focus:
"There are a few items that stand out right away. First, reduced thresholds for block trade reporting waivers is a positive impact on trading and liquidity as more trades will now be exempt. Similarly, extending the Order Management Facility waiver across non-equities is helpful, notwithstanding concerns about the minimum sizes being too low in certain asset classes. Additionally, some of the other waivers have gone the opposite direction and no longer apply. As a result, a number of new parties have been pulled into MiFID reporting, such as asset managers who benefited from the FCA's portfolio manager exemption."
Comment from MarketAxess and Trax:
MarketAxess and Trax worked directly with ESMA in testing draft technical standards by applying market data from Trax to the proposed pre-trade transparency approaches as well as provide input on the functioning of the European fixed income markets. As part of its post-trade service offering, Trax processes approximately 65% of all fixed income transactions in Europe, making MarketAxess and Trax uniquely positioned to aid the industry in coping with regulatory change.
Miranda Morad, general counsel for MarketAxess Europe and Trax: "With the release of the technical standards (TS) on MiFID II/MiFIR from ESMA, this marks the start of a review and implementation process for the industry. Consistent with our previous approach, Trax will continue to work with the industry and leverage its data to analyse the implications of the new proposals."
Scott Eaton, COO for MarketAxess Europe and Trax: "The challenges facing the fixed income markets today are not isolated to one area of the trade lifecycle but felt across the front- and back-office of all institutional firms. While the real work of implementing the technical standards begins, firms like MarketAxess and Trax have already been preparing for change and developing tools to comply with these challenges."
Updated MiFID rules slash large-in-scale thresholds:
Smaller stocks have had their threshold for the large in scale waiver slashed to try and preserve liquidity, the final rules for MiFID II have revealed, reported The Trade.
Comment from Noel Montaigue, senior EMEA business manager at OpenLink:
"Clearly the impact of MiFID II is significant, but death knells surrounding boutiques and certain complex product types are highly premature.
"The standards have been anticipated for so long that major structural changes, such as sell-side banks cutting their commodity desks, have by and large already happened.
"The challenge in a post MiFID II world will be homogenising new standard practises across multiple asset classes. The problem is that across many firms, these practices are still run on separate systems. This is particularly problematic for institutions who have historically followed a best of breed approach when selecting platforms for different asset classes.
"There will be a greater need for a much broader data model than some systems can provide for certain asset classes, and firms will be loathed to spend even more on data management projects.
"Between now and 2017, you can bet your bottom dollar that many firms will be making significant investments in their IT platforms and operational processes - not least around trade reporting and associated processes like authorisation.
"We'd expect to see a further wave of consolidation within the financial services ecosystem next year as those firms who lack the technology to smoothly embed and streamline the new requirements will be gobbled or broken up."
Comment from Neill Vanlint, managing director of EMEA and Asia at GoldenSource:
"From 23 data fields to report on under MiFID I, to now more than 80 under MiFID II, this is a daunting prospect for any financial institution. Post-trade, the breadth of data required to meet reporting obligations will increase significantly, putting a huge strain on existing data management processes and systems.
"This is why, in the run up to MiFID II, institutions have been looking at ways to adapt their processes and systems. Whether these firms have had sufficient time to get their houses in order is debatable. We have certainly seen a shift in philosophy from a siloed data management approach to a more centralised one that supports key linkages between data sets which is critical not just to meet the reporting requirements."
Comment from Brian Collings, CEO, Torstone Technology:
"The publication of technical standards means that the clock has finally started ticking towards MiFIR (Markets in Financial Instruments Regulation) implementation. Banks, many of which are dependent on legacy systems, need to start assessing the suitability of their technology and processes for MiFIR requirements now. Our conversations with operations and compliance managers on what needs to be done and by when are currently underway.
"Transaction reporting obligations alone throw up some big challenges such as the major change which now requires most asset classes to be captured access to personal data and new security-type classifications."
Comment from Ed Royan COO, EMEA, AxiomSL:
"The publication of the MiFID II technical standards will be welcomed by the industry. However, the development of the regulation has experienced a number of delays, which have reduced the amount of time firms will have to implement the requirements.
"Transaction reporting is likely to be the most challenging aspect of MiFID II, as firms will need to report not only instruments that are traded on regulated markets, but also those traded on organised trading facilities (OTFs) and multilateral trading facilities (MTFs). They will also need to report more than three times as much data about each transaction as is currently required under MiFID I.
"The impact of the reporting requirements will be keenly felt in the UK, where most asset managers have used the FCA's portfolio manager exemption to avoid transaction reporting under MiFID I. This exemption will no longer apply under MiFID II. As a result, assets managers in the UK now have big decisions to make about the type of reporting infrastructure they will use to manage the MiFID II transaction reporting requirements."