With RTS 27 reporting underway, what have systematic internalizers told us are the biggest issues associated with this new MiFID II regime for best execution?
- After the first RTS 27 reporting deadline for Systematic Internalizers on 30 June, our breakfast forum sought the views of investment firms.
- Common issues with RTS 27 reporting include ambiguity over what data is relevant.
- The Thomson Reuters Velocity Analytics platform has the data models to produce RTS 27 reports in a standard format.
The latest in a series of key dates associated with MiFID II best execution requirements passed on 30 June, with the deadline for Systematic Internalizers (SI) to submit their first RTS 27 report.
RTS 27 is a quarterly requirement for execution venues, as well as market makers and SIs, to publish best execution reports.
As of mid-July, there were 109 registered SIs, the most popular asset class being bonds (64 SI’s) followed by derivatives (54 SI’s) and shares (49 SI’s).
The next important landmark for financial organizations is on 1 August with the market size for equities and bonds being released by ESMA.
This will determine whether the trading activity of investment firms requires them to adopt SI status.
The countdown clock then begins with mandatory registration for equities and bonds by 1 September, with a looming 31 December reporting hurdle. (Derivatives registration has been delayed until 1 March 2019.)
In order to gain insight into our customers’ experiences and reflections, we hosted an RTS 27 breakfast forum to facilitate discussions on the various issues being faced.
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Common issues with RTS 27 reporting
Every single venue operator is required to produce the RTS 27 reports on a quarterly basis. These reports consist of nine tables that cover price, cost, speed, likelihood of execution.
The overall feeling is that there are clear challenges on how to interpret some of these tables.
In the opening presentation of the forum, Melanie Heineman, Product Manager for Enterprise Analytics, alluded to the fact the tables are not easy to grasp, and that each of the tables had specific layers that needed interpretation and standards set out to simplify the analysis and report generation.
I then led a panel that focused on the immediate challenges of RTS 27. Panelists shared their respective experiences, and on the whole were pleased.
There was consensus that there were considerable issues with OTC traded instruments, and particularly with voice trading where automating the workflow to capture the order lifecycle was a challenge.
Firms highlighted the concern around data quality, aggregation and field definition interpretation.
During the round table discussions, many participants said they felt they had spent a year producing reports that no-one in the market was looking at.
The concern was raised that given the inconsistency in the way the reports are produced, the buy-side would find little value in them as they would be unable to aggregate them at present. Not all tables and not all asset classes have been completed and some tables don’t use product identifiers (ISINs) but rather rely on written descriptions.
It was felt that greater prescription from the regulators about what was required would assist with this.
If the buy-side saw no value in the report, it would struggle to be seen in the market as a useful document.
Areas for improvement
Some felt they had delivered the first report but their models weren’t sustainable on a long-term basis.
Further individuals highlighted that the reports felt as if they had been designed for equities markets and didn’t really fit the OTC- or RFQ-based markets well, with Tables 3, 4 and 6 being particularly hard to complete.
The inconsistency across tables was also highlighted as an issue.
Given the opportunity to ask the regulator one thing to improve the process, delegates responded with answers such as:
- Clarify ambiguous rules
- Define reports for different paradigms more clearly
- Mandate Output Formats
Those who opted into the SI regime saw a number of challenges with RTS 27 reporting:
- Interpretation of business model and determination of what data is relevant for reporting
- Understanding report templates and table contents
- Acquiring data internally
- Building the reports
- Publishing the reports
Data analytics solutions
Those who will begin adopting the regime after 1 August face the same challenges, coupled with the urgency to comply with the 31 December reporting deadline.
We’re here to help.
Thomson Reuters is ideally positioned to support your best execution needs by being a market leader in real-time and end-of-day data, as well as providing class-leading best execution solutions.
Our Velocity Analytics Platform, winner of this year’s RegTech award for best Best Execution Solution, addresses key MiFID II challenges faced by financial firms, such as best execution reporting, best execution monitoring, and SI determination.
Velocity Analytics has the necessary data models to capture cross-asset orders, executions and quotes.
The platform ingests referential data from Thomson Reuters DataScope to provide ISINs, CFI and Subclass definitions to produce RTS 27 and RTS 28 reports in a standard format.
Velocity Analytics is a high performance trading analytics platform, powered by Kx, that covers the entire trading lifecycle.