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

Ivy Schmerken

Editorial Director at FlexTrade

Views 121

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

Koen Pelgrims Atos

Open Banking: the Landscape by 2025

Open Banking is here. The Second Payment Services Directive (PSD2) now requires banks to give any third party access to use payments data and launch transactions from a customer’s bank account, subject to permission. It’s a radical idea; and while Read more »

Breana Patel Bonova Advisory

How Important is Enterprise Risk Management?

Enterprise Risk Management.  Arguably the largest evolutionary change in risk management for financial institutions has been the elevation of the risk management function to a key role in firm management. Risk is truly an overriding firmwide concern Read more »

Marina Avseeva Investment Holding

European Fintech Buzzing with VC Investment

Keeping up to speed with trends in technology takes time and effort, especially when it comes to financial technology or fintech as it is commonly referred to as. Money is streaming in to fintech, and everything from how we bank to how we make Read more »

John Lambert Mastercard

Drive to a Better Online Checkout Experience Starts Today

Calling for Industry Support of Online Shopping Technology Standards Vision to Move to Token-Only Storage of Payment Details Today, we take for granted how easy and convenient it is to use a card to pay for things in any of the 50 million stores Read more »

Bernhard Mors Mastercard

Mastercard at WTTC Global Summit: Partnering for Sustainable Tourism

Contributing more than 10 percent to global GDP, travel & tourism is one of the world’s largest industries. While the sector is characterized by its resilience, it faces significant challenges such as digitization, mobility across borders and Read more »

Related Blogs

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 »

Christian Voigt Fidessa

MiFID II quick fixes

In its consultation for changing RTS 1, published yesterday, ESMA suggests that the tick size regime should also be extended to Systematic Internalisers. I don’t want to discuss whether it is a sensible proposal. Nor do I want to debate whether ESMA Read more »

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