MiFID II Post-Mortem Cites Delays on LEIs and Data Quality as Key Challenge

Ivy Schmerken

Editorial Director at FlexTrade

Views 287

MiFID II Post-Mortem Cites Delays on LEIs and Data Quality as Key Challenge

12.04.2018 11:30 am

With the rollout of such a massive regulation as MiFID II, there are bound to be some hiccups, but so far firms are mainly wrestling with trade reporting and data quality issues.

That sentiment was expressed on a webinar hosted by A-Team Group,  MiFID II Trading Technology Requirements:  What Worked and What Hasn’t?, in which panelists aired their views on the most challenging aspects of the implementation and areas that need improvement.

In a poll taken during the A-Team’s post-MiFID II webinar the audience was asked which trading elements of MiFID II are going well: 38% said best execution, 23% algo trading, 40% communications recording, 35% time synchronization and 23% said nothing is working well.

Firms are focused on getting the regulatory pre-trade transparency reporting in place, along with post-trade reporting and best execution reporting, according to Thomas Kennedy, Global Head of Analtyics at Thomson Reuters.

LEI

Thomas Kennedy

In terms of trade reporting, “That has gone well, without major hiccups,” said Kennedy.  The Approved Publication Authorities (APAs) did a “pretty good” job of making their services available, said Kennedy. Many of the venues operate their own APAs so they can facilitate trade reporting for their clients.

“The challenge most firms are facing is how do they get data out of systems and figuring out issues with the reference data,” said Kennedy.

Under RTS 27, trading venues and systematic internalizers are obligated to submit reference data from Jan. 3 for the relevant financial instruments to national competent authorities (NCAs) who will subsequently transmit it to ESMA for publication.

On that front, ESMA’s Financial Instrument Reference Database or FIRDS did not come online until October of last year.

“Vendors and consumers of that content didn’t have much time to test and put controls on their systems,” Kennedy said.

While FIRDs is supposed to be a golden source of data, panelists said there is some inconsistency in the data.

ISINs and LEIs, Oh My

Venues and Systematic Internalisers (SIs) also had to request International Securities Identification Numbers or ISINs from FIRDS.

Citing a high volume of ISINs requested over the FIRDs database, Kennedy noted that 1.2 million ISINs were requested, representing a 70%-30% ratio split between venues and SIs requesting ISINs.  “Firms are trying to grapple with the reporting needs and taxonomy challenges that are mandated,“ he said.

Brokers also had to obtain legal entity codes for all of their clients, and trading venues had to get legal entity identifiers (LEIs) for each financial instrument traded on their venue. EU investment firms are required to identify each client with an LEI code.

“There are some firms that had to apply for an LEI that never had an LEI before,” said Kennedy. So, this is becoming kind of a task they have to manage that they didn’t have to do before,” he said.

The MiFID II rule was “No LEI, No trade,” said Kennedy. A lot of firms had hard-coded their systems to block trades with missing LEIs.  As a result, some trade reports were rejected and there is a backlog that needs to be transmitted, said Kennedy.   But the no-trade rule was given a break by ESMA for the first six months. ESMA allowed a workaround for LEIs for the first six months.

In terms of what’s giving participants the most difficulty, panelists pointed to trade reporting obligations. Kennedy noted there’s a lack of clarity in the types of trading being done. Some reports have been filled out incorrectly and were being rejected, he said.

LEI

Rachel Przyblski

A sell-side panelist said her firm is still working on RTS 27 and 28 reports, but the other aspects of best execution have been in place for some time, or just need a few tweaks.

Compliance with MIFID II has brought some positives. “It has made the processes and procedures more robust,” said Rachel  Przyblski, head of market structure at Saxo Capital Markets. But it’s also caused firms to worry about the OTC asset classes. “Looking at the other asset classes, we had to work out what was required by regulators, how to use data internally and externally, and how to make meaningful data sets out of them,” said Przbliski.

Along similar lines, Instinet Europe’s Head of Business Development, Ben Stephens, said he’s surprised to see a large amount of trading being reported OTC as “non-addressable SI liquidity or non-addressable SI prints.”

According to MiFID II, there should be no trading outside of a venue or SI, said Stephens. Yet, he has seen about 50% of the [trade] reports happening OTC, he said.  “It doesn’t feel right,” he said. That is a sign that firms put in place workarounds because people weren’t sure how to report. That will change if there is further guidance from ESMA on how exactly to report.

Despite the high level of OTC reports, Instinet has seen good results from bilateral liquidity providers over the life of an entire order. “Some of these firms are able to add value for their clients and get better performance than prior to MiFID II, and we’re able to access venues were previously not able to,” he said.

 

This article originally was published on the FlexTrade FlexAdvantage Blog

Latest blogs

Duena Blomstrom PeopleNotTech

Questioning Agile

I get that request all the time. People from all industries who have had no brush with the concept and who have seen some of my articles and can see my borderline-obsessive passion when it gets mentioned want me to provide a Cliff notes version to Read more »

N/A Red Deer

The hidden problems Europe uncovered during unbundling

This is the second in a three-part series of articles to help US asset and hedge fund managers answer their clients’ questions about the unbundling of payments for research and trading and understand what a best in class research management system Read more »

Sarah Jackson Equiniti Credit Services

PSD2 and consumer credit: how will open banking impact the market for unsecured loans?

15 months after open banking launched in the UK, consumer understanding of what it means remains low. In January this year, research showed that just 9% of British adults had used open banking services, and less than a quarter (22%) had even heard Read more »

Alex Nelson Investec Click & Invest

Spring Statement comment: "UK a land of opportunity for investors" - Investec Click & Invest

The chancellor's Spring Statement confirms that, despite Brexit uncertainty, the strength of the underlying economy means there are great opportunities in the UK for equity investors. British stocks have, over the last thirty years, been the darling Read more »

Danny Healy MuleSoft

PSD2 Deadline Tomorrow - How Should Banks Respond?

Tomorrow marks PSD2’s next deadline – the point by which banks must make their open APIs available for testing by payment and account information service providers. Danny Healy, financial technology evangelist at MuleSoft has thoughts on it. Danny Read more »

Related Blogs

Ivy Schmerken FlexTrade

MiFID II Reaches Across the Pond: Is This the Calm Before the Storm?

Despite the view that MiFID II is a European regulation, US investment managers are experiencing disruption as they align their research payment and execution practices with the influential standard. While MiFID II went into force on Jan. 3, 2018, Read more »

Ivy Schmerken FlexTrade

MiFID II’s Trading Hereafter: Systematic Internalizers & Block Venue

MiFID II went live on Jan. 3 without much fanfare, but the EU regulation is already shifting trading behavior toward Large-in-scale block trading venues and new venues called systematic internalizers run by banks and high frequency trading firms. Read more »

Ivy Schmerken FlexTrade

Seeking Clarity on MiFID II Inducement Trading Rules

With MIFID II’s rules on inducements now a reality, buy-side firms are paying close attention to the costs associated with their front-office trading platforms and analytics. The EU regulation, which took effect on Jan. 3, could draw scrutiny to Read more »

Stefan Negrila Luxoft

MiFID II: Exemptions and Trading Volumes

As expected, most institutions were only partially prepared for MiFID II. Therefore financial regulators have granted last minute exceptions to ease the pain and ensure orderly function of the markets. Futures exchanges in the UK and Germany were Read more »

Sophie Guibaud Fidor Bank

MiFID II: "Will Have Huge Effect On Financial Organisations' Relationships With Regulators"

Mifid II is a key piece of European-wide legislation. This regulation, along with the incoming GDPR piece of legislation, means that financial organisations will be looking at immediate options to help them decrease their regulatory risk and costs, Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App