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Beyond MiFID II: How to secure competitive advantage

Marion Leslie

02 Oct 2017

Mercedes' Lewis Hamilton celebrates as he crosses the finish line to win the 2015 British Grand Prix at Silverstone. Photography: Andrew Yates
Mercedes’ Lewis Hamilton celebrates as he crosses the finish line to win the 2015 British Grand Prix at Silverstone. Photography: Andrew Yates

Box-ticking compliance on MiFID II isn’t enough when financial institutions can use their newly created regulatory data to secure competitive advantage.

The MiFID II deadline of 3 January 2018 is etched into the minds of CIOs, Heads of Market Data and compliance departments the world over.

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How are they approaching MiFID II and, just as importantly, what are they hoping to achieve through their regulatory investment?

There are three potential outcomes.

The first is compliance. Get over the line, tick all the right boxes, and avoid the fines.

The second is optimization. Achieve a sustainable regulatory solution, automate wherever possible to reduce errors and costs, and reuse data and sources across business, operations, risk and regulations.

The third is innovation. Create opportunity from the regulation: capitalize on the new data, set it free, derive new insight to move with the market structure changes, and deliver real competitive advantage.

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Obstacle or opportunity?

MiFID II is a challenge and there will be plenty of MiFID II remediation work throughout 2018. But now is also the perfect time to think about what you are going to do differently post MiFID II.

With US$270 billion spent on compliance, and anything up to 10% of operating cost dedicated to compliance, it is no wonder that firms are placing a number of strategic bets.

Strategies include setting up innovation labs, partnering with fintech firms (such as Société Générale’s agreement with fintech company, Smartkarma, to provide equity research that complies with MiFID II’s unbundling requirements), and investing in start-ups, such as blockchain consortium R3.

Banks cannot afford to wait and see what happens, and they need to spread their bets.

Watch video – How can you turn MiFID II compliance from challenge to opportunity?

Past regulatory examples

Market structures and business models will change with MiFID II.

It will affect the whole financial services industry one way or another and fundamentally change market practice. You only have to look at the impact of other regulations.

Take Regulation National Market System (Reg NMS), for example. This regulation resulted in five years of market structure changes, including smart order routing and fragmentation.

Take also Solvency II. Primarily concerned with the amount of capital EU insurance companies held to reduce insolvency risk, it drove insurers to create data management practices to manage reporting requirements.

It also resulted in insurers partnering with fewer fund administrators, preferring those able to provide supporting services to ease the regulatory burden.

Asset managers and fund administrators also saw an opportunity to differentiate themselves with new products, services and insights to enable their customers to optimize their regulatory response.

In short, minimizing capital requirements, optimizing returns and creating quality reporting.

MiFID II’s Best Execution requirements have been extended across all asset classes and have tightened the language from “reasonable” to “sufficient” measures to prove the quality of execution.

At the very least, MiFID II means clients will be judging their investment bank’s ‘best execution’ performance on best price, cost, speed, likelihood of execution, nature of order, and size.

It follows that clients will start to judge every institution that way — whether bound by MiFID II or not.

Sharpen your competitive edge

Fueling your analytics platform with new transparency data will give you a better understanding of the market, your performance and the performance of brokers.

Through Thomson Reuters Velocity Analytics, our enterprise data analytics platform, you can solve best execution requirements by using market data feeds from Elektron Data Platform (EDP) to generate critical MiFID II analytics, aggregating and analyzing millions of data points to provide streaming analytics, using our own or custom benchmarks.

Discover how Thomson Reuters Elektron Data Platform delivers the data you need to make smarter trading and investment decisions

Our unparalleled global tick history data, recorded from Thomson Reuters Elektron Real Time, covering both over-the-counter (OTC) and Exchange Traded instruments across more than five hundred venues and third party contributors, coupled with our comprehensive reference data, provides the highest grade fuel for analytics and testing, driving insight and value.

Building for the future

Ticking the compliance box will not ensure survival.

It is a commercial imperative to invest in better data and analytics to drive business forward.

Find out how Elektron Data Platform from Thomson Reuters enables transactions and connects communities of trading, investing, financial and corporate professionals

Thomson Reuters is well positioned not just to help you solve the challenges of global regulations, but to enable you to perform throughout the inevitable market shifts resulting from regulation.

Take the opportunity to create real value and advantage for your business.

So if you want a fuller, richer life for your organization’s data after MiFID II, we’re here to show you how.

Asia Pacific Summit: The upsides of buy-side The platform to digital transformation in financial trading MiFID II progress summary report: Why there’s still work to do MiFID II best execution: Are firms ready for RTS 27 and 28? Powering asset management – Overcoming research unbundling Regulatory intelligence: Unlocking value in content MiFID II: How will it impact the European energy sector? Building a data strategy for trading automation From MiFID II to GDPR: RegTech summit lights the way Measuring the success of sell-side research