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MiFID II Transparency Puts Stress on Data Architecture

Traders Magazine Online News, August 14, 2017

Ivy Schmerken

With only four months to go until the MiFID II’s Jan. 3, 2018 implementation date, buy-side firms are facing huge changes in disclosure and transparency requirements, which could upend their data management architectures.

Participants on a webinar hosted by A-Team focused on MiFID II: Data for Transparency, said that firms are wrestling with the changes from MiFID I to MiFID II.

Ivy Schmerken

By raising the bar on market transparency, MiFID II has created a huge data management problem for buy-side and sell-side firms, particularly for investment managers. They need to take in a lot of data from the various venues to provide disclosures to their clients and to their national competent regulators. Transaction reporting is necessary for all financial instruments on a T+1 basis, but while MiFID I had 20 fields, MiFID II raises the number to 65.

As opposed to a one-dimensional problem, panelists describe MIFID II’s transparency requirements as multi-dimensional with tentacles that reach into almost every internal system from trade order and execution management (OMS/EMS) to legal entity identifiers (LEIs) and reference databases.

“There is no one specific area which is affected by the data management challenges. It spreads across all aspects of business and technology,” said Irina Sonich-Bright, Director of Global Markets Electronic Product and Head of Business Development at AES, Credit Suisse.

Areas that are most impacted by MiFID II’s data transparency demands are data sourcing, data management, publication and distribution of data, and non-equity instrument data, according to the webinar poll.

The drastic shift in trade reporting requirements stems from the expansion of coverage to non-equity instruments, including fixed income, swaps and derivatives. Another dimension of change is the move to report instruments that are admitted to trade on trading venues as opposed to just the regulated markets.

“There are a lot of entities in the market that suddenly have these transparency requirements that didn’t have them before,” said Beate Born, global MiFID II trading project lead at UBS in the wealth management and private banking space, speaking on the webinar.

In the past, the buy side could rely on their sell-side counterparties to report trades to regulators. But the transaction reporting under MiFID II drastically expands the scope and level of detail required from venues, brokers and investment managers.

Investment firms are expected to comply with RTS 28  —ESMA’s best execution quality disclosures on their top-five execution venues, in terms of trading volumes of executed orders for each class of financial instruments.

ESMA has stated it expects firms to release the first annual report under RTS 28 by April 2018, according to a whitepaper by law firm Eversheds Sutherland.

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