Esma’s draft rules are set to be finalised in September
The full scope of the regulatory technical standards (RTS)under Mifid II are yet to be fully realised by the market, with further workneeded especially on trade reporting requirements, presenting a huge projectfor market participants.
Market sources have expressed concern over the slow pace ofwork by firms in preparing for trade reporting, with some likely to be leftbehind if the September deadline is met as expected.
The final draft of the European Securities and MarketsAuthority’s (Esma) Markets in Financial Instruments Directive (Mifid) II RTS isdue in September, with the current go live date for the rules slated for January1 2017.
While the market has been ramping up preparations, much moreneeds to be done, according to a source familiar, “the market is set for a rudeawakening; some firms have some catching up to do on the scope of tradereporting. This is a huge project and it seems that the wider market isstruggling to understand the breadth of the rules.”
The impending rules under Mifid II present a number ofchallenges across reporting and transparency. In a piece for FOW in April, Protiviti'smanaging director Bernadine Reese and director Stuart Campbell, said, “The mostsignificant operational change areas will be transaction reporting, tradetransparency and the effects of changes around product – particularly ondistribution. The new requirements for those who use algorithmic models todetermine investment decisions are also an area of concern.”
Indeed partner at law firm Vedder Price, Sam Tyfield, toldFOW, “There remain a lot of issues around the trade reporting, tradingobligations and authorisation requirements, i.e., what is a liquid instrument, thedifference in definitions between a CDF, equity swap, etc. and what counts as directelectronic access are important – it remains to be seen what scope particularrequirements will cover.”
Tyfield
Tyfield continued, “The data fields are going to require ahuge amount of work. The main issue I expect to see is that it is very hard tohave market-wide knowledge of regulatory requirements.”
A London-based source welcomed the increase in market preparationseen of late, though noted, “One thing to consider is the fact that the RTScould still change, the hope is just that rules do not get any worse for marketparticipants.”
Signs of preparation can be seen across the market, butTyfield suggested that more work to be done. “There remain a lot of issuesaround the trade reporting, trading obligation and authorisation requirements;what is a liquid instrument, The difference in definitions between a CDF,equity swap, etc. and what is DEA are important – it remains to be seen whatscope particular requirements will cover.
“There remain a huge number of imponderables; the marketdefinitely needs more clarity,” he added.
With change comes opportunity; as reported by FOW earlier this week, equities exchange group, Bats Chi-X Europe, is considering an extensionof its equity market trade reporting service to cover OTC derivatives, once theMifid II RTS are finalised.
“The market is doing its best to prepare for the impendingswathe of data field and other requirements, but there is more to be done andmore to learn from Brussels and Paris,” said Tyfield, “The news that Bats isconsidering an extension of its trade reporting functionality demonstratesthis; the market is working toward changes, but a lot of issues remain.”
Market preparation also includes the recent creation ofregulatory subgroups by standards body FIX Trading Community, to support itsmembers in meeting the requirements of Esma’s RTS.
FIX has created six groups: Clock Synchronisation; ReferenceData; Transparency; Best Execution; Microstructure; Order Data; and RecordKeeping.
Healey
Speaking to FOW on the new support network, Rebecca Healey,CEO of Incisus Group and co-chair of the EMEA Regulatory Subcommittee, told FOWlast week that more work is required to meet the Mifid II requirements.