MiFID II market data: Let the market help!

This article is by Isabel Adams, Joe McHale and Gary Stone.

As we speed towards the 3 January 2018 MiFID II implementation date, stress levels are rising. Firms realize that many implementation questions may not be answered until this summer – the deadline for Member States and their National Competent Authorities (NCAs) to translate key parts of the new requirements into national rules. And, as much as firms want to just “make some assumptions and get on with it,” the industry has to deal with the elephant in the room: data.

Data is the critical glue which will hold MiFID II together. Data enables investment firms to determine their categorization; it also enables investment firms and venues to meet their reporting obligations. The industry was counting on being able to access some data from ESMA’s consolidation of Union-wide NCA and venue reporting. From this foundational data the industry could derive the balance of the information needed to make MiFID II run. It now appears, though, that the data, which ESMA will be in a position to provide in relation to Systematic Internalizes (SI) and Financial Instrument Reference Data Service (FIRDS) may not be as granular or as timely as once wished for in order to satisfy the implementation needs of industry.

But there’s a way out: if ESMA and the NCAs make the raw data available (the source data that ESMA intends to aggregate), then D.I.Y. foundational datasets can be constructed by the industry and validated against ESMA’s data once it is published.

Why is this necessary?

It is crucial for market participants to start their day with a list of what’s made available for trading (MAT) in the EU. Without this information, compliance with the share trading obligation becomes extremely challengingand transaction reporting, pre/post trade waivers and deferrals (APA) cannot function properly. Moreover, the NCAs cannot effectively fulfill their mandated Market Abuse Regulation (MAR) surveillance obligations unless they have a consolidated list of all the securities MAT in the Union.

The win-win way out
Luckily, ESMA and the NCAs can solve this problem in one go by enabling each jurisdiction’s MAT data to be made public at the same time it is sent to ESMA. It’s not a secret – it is going to be published anyway but the current publication timeline leaves too little time for firms.

Under the current RTS, the trading venues have to send – at the end of the current trading day – what is available and what will be available the next trading day (the new MAT) to their NCA or directly to ESMA. The NCAs then have to aggregate the information of venues under their jurisdiction and transmit an aggregated list to ESMA, which will in turn aggregate the data and then make it public. Market participants then need to incorporate this data into their systems before the new trading day starts.

Instead, if ESMA (for the venues that are reporting directly to them) and the NCAs could make their lists public on a common website or location2 and use the same ISO 20022 XML format, all the NCAs, brokers, asset managers, vendors – and whoever else is interested – could “scrape” and assemble an aggregate list that represents the EU markets well before the start of the next trading day. This scraped data could then be validated against ESMA’s Financial Instrument Reference Data Service (“FIRDS”) data once it is published.

This D.I.Y. approach would help ready reporting systems and compliance processes to be prepped for the start of the trading day, increase accuracy by enabling the industry to have several different datasets to compare and at the same time would help overcome key barriers to accurate reporting under the MiFID II framework faced by both market participants and NCAs.

  1. We discussed the “share trading obligation” and the effect it could have on the traditional buy side’s workflow when executing non-EU equities that have the same ISIN as an equity that has been listed on an EU-regulated market or traded on an EU trading venue.
  2. For example, a similar NCA website address across the Union: www.data.<nca address>. The FCA could be www.data.fca.org.uk; AMF, www.data.amf-france.org; BaFIN, www.data.bafin.de…. Simple standard addresses with similar file names would make the scraping easy for the industry to innovate and be an efficient relief valve.
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