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MiFID II: Meeting data transparency, publication and reporting obligations

John Mason  Head of Regulatory & Market Structure Strategic Response & Propositions, Thomson Reuters

John Mason  Head of Regulatory & Market Structure Strategic Response & Propositions, Thomson Reuters

Financial institutions are bracing themselves for the EU’s impending Markets in Financial Instruments Directive II (MiFID II). Often described as the most far-reaching regulation affecting trading firms and their clients in a generation, the directive will have significant impact on investor protection, conduct of business, transparency, and organisational and infrastructural issues.

But less widely acknowledged has been the far-reaching reference data requirements outlined in the directive, due to come into force in 2018. That said, firms are finding that with some careful adjustments, the data sets and infrastructures they already have in place can help them meet many of their new obligations.

MiFID II is broader in scope than its predecessor, which was introduced in 2007 to improve the competitiveness of European markets by creating a single market for investment services and activities, and ensuring protection for investors in financial instruments. For a start, MiFID II expands many of MiFID I’s equities market-focused requirements into non-equity markets.

The most sweeping changes made by the new directive, though, apply to the pre- and post-trade transparency regime of EU financial markets. MiFID II extends the current transparency requirements to other equity-like and non-equity instruments traded on any trading venue, including multilateral trading facilities (MTFs) and organised trading facilities (OTFs).

Systematic internalisers and other investment firms that trade over the counter in financial instruments will also be subject to expanded pre- and post-trade transparency obligations, greatly increasing the need to distribute pre-trade quotes and report transaction data.

The directive mandates a move to faster publishing of post-trade transaction data to local competent authorities, reducing the time delay from three minutes to one minute. This move promises to require investment in underlying data architecture and will put pressure on firms’ abilities to retrieve supporting reference data from repositories quickly and accurately.

The expansion of MiFID II beyond equity markets extends transparency requirements to sectors such as depository receipts, exchange-traded funds and company certificates. Reporting in non-equity markets will require transaction-based post-trade transparency, with the provision of price, volume, time of trade and reference characteristics of data remaining the primary reference data considerations, along with codes being created for non-equity based instruments. Guidance from the European Securities and Markets Authority (ESMA) recommends the use of the machine-readable XML format for transaction reporting.

Under MiFID II, firms must implement common data processes and data quality metrics, which will require adoption of data standards to ensure consistency of reporting across all regulated activities. They must also manage multiple identifiers, including industry standard Market Identifier Codes (MIC) and the Global Legal Entity Identifier (LEI).

MiFID II expands many of MiFID I’s equities market-focused requirements into non-equity markets.

MiFID II also outlines a framework for market data that includes standards, such as International Security Identifier Numbers (ISINs) for securities identification, and will act as a basis for the publication of trade data to a consolidated tape. This initiative brings with it new requirements around data standardisation, availability, quality and timeliness.

Meanwhile, the International Organization for Standards (ISO) has issued updates to some of its standards that may be of use under MiFID II. Specifically, it has updated the ISO 10962 (Classification of Financial Instruments) and ISO 4217 (Currency Codes) standards, and ESMA is looking to require their use where appropriate.

Many firms have many of the systems and data sets needed to cover all these bases in place. True, some may not be addressing some of the new areas MiFID II applies to. But with some homework during the design phase, and by partnering with a trusted data supplier to fill the gaps, firms should be able to meet the deadlines without panicking.

Firms must now look to how they can go beyond MiFID II and address their common obligations under the Fundamental Review of the Trading Book (FRTB), Packaged Retail and Insurance-based Investment Products (PRIIPs) and the EU’s General Data Protection Regulation (GDPR), to name but a few.


Learn more

Thomson Reuters can assist you in addressing your MiFID II challenges. For more information, visit MiFIDii.com or financial.tr.com/regulatorydatasolutions

View this post as it originally appeared on Inside Financial & Risk.


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