markets

Traders Win Another MiFID Reprieve With Passport Data Waiver

  • U.K.’s FCA informally told venues not to bar rule breakers
  • Grace period is latest delay to a key requirement of MiFID II

U.K. regulators are giving a temporary pass to traders who haven’t supplied personal information, say two trading venues, meaning watchdogs are granting another reprieve to a component of Europe’s MiFID II laws.

The Financial Conduct Authority told NEX Group Plc that trading venues should continue to accept business from traders and fund managers who have not submitted personal-identity data, such as a passport number. A person at another market operator, who asked not to be identified because the conversations were private, said the same.

It’s the latest example of delays and grace periods in implementing Europe’s sweeping overhaul of financial market rules. Under MiFID, trading venues are supposed to ban anyone who doesn’t include personal-identity data when they place orders. The information lets regulators more quickly identify individuals in cases of suspected market abuse.

“Regulators have been flexible,” said Ben Pott, group head of government affairs at NEX, an operator of bond and currency markets. “They’ve told the trading-venue community they wouldn’t expect European venues to stop dealing with clients on day one if they haven’t provided all the personal data.”

Representatives for the FCA and the European Securities and Markets Authority -- which drafted the rule -- declined to comment. In September, Mark Steward, executive director of enforcement and market oversight at the FCA, said the regulator would act “proportionately” in determining compliance with the rules “given the size, complexity and magnitude of the changes” asked of firms.

To comply with the rule, the trading venues have to collect data from tens of thousands of investors and traders, including many from outside the European Union who hadn’t realized that the sprawling overhaul of Europe’s markets regulations also affected them. Some of the biggest trading venues, such as Tradeweb LLC in bonds and Cboe Europe in cash equities, had warned that the mammoth data-collection exercise was one of the biggest problems with MiFID. A Tradeweb spokeswoman declined to comment on the reprieve. A Cboe spokeswoman wasn’t immediately available to comment.

Read more: why collecting traders’ passport numbers is a MiFID nightmare

Regulators have delayed limits on dark tradingderivatives and a requirement on trading firms to get identifying codes.

The FCA has held multiple phone calls with one of the trading venues to gauge whether fund managers are finally handing over their data, the person said. The firm will probably collect all the outstanding personal identity data within weeks rather than months, the person said.

Some trading venues will find it harder than others to make their members follow the rules. Switzerland and South Korea, for example, ban people from sending their passport numbers to commercial organizations. Fund managers in both countries will need to find a different way to trade if the EU’s national regulators ever decide to strictly enforce the rules.

Missing personal identity information mean trades will be rejected by reporting systems. Last week the Irish central bank said that validation errors have resulted in large numbers of reports being rejected.

“By the second quarter, both sides will need to have a serious chat about how to handle clients that can’t or won’t provide the data for legal reasons,” Pott said.

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