EFAMA’s perspective on need-to-know
regulations for buy-side heads of trading
As the dust is settling from the implementation of MiFID II since the beginning of 2018, K&KGC has captured
both remaining and new regulatory challenges that are need-to-know areas for the buy-side heads of trading
at the Alpha Trader Forum roadshow meetings in London, Paris, Frankfurt and Stockholm this autumn.
We caught up with Vincent Dessard, Senior Regulatory Policy Advisor at EFAMA for further comments to our findings.
ESMA’s central facility in relation to instrument reference and
Steven Maijoor, Chair of the European Securities and Markets
Authority (ESMA) made an interesting statement in his speech on
3rd October 2018 on the “The state of implementation of MIFID
II and preparing for Brexit” about ESMA’s preparation of a central
facility for instrument reference and trading data. Considering
the long standing and intense debate about consolidated tape in
Europe, would you please elaborate about what you know about
this initiative and to what extent it may benefit the buy-side
Vincent Dessard: First and foremost, thank you for allowing me
to contribute with EFAMA’s perspectives in issue 14 of your excellent
magazine. The Consolidated Tape (CT) has been on EFAMA’s wish list
since the inception of drafting MiFID II.
The key benefit of a CT is to facilitate a “golden source of data”.
We could early on identify the benefits of a publicly mandated,
single solution deployed across all asset classes. However, no
multinational authority previously volunteered to take on that
kind of role. The authorities also needed to offer the opportunity for
multiple commercial providers of CT to promote market stability and
ESMA has now confirmed the start of their CT development. While
we would welcome a multi-asset solution with real-time tape,
the starting point will be delayed tape for cash equities. Another
development area I would like to propose for the future, to enhance
and centralise the transparency of markets would be if the CT could
also include trade reporting data for derivatives, securities financing
transactions (SFT) and movements on bonds that are on an
international central securities depository (ICSD). This would be useful
to centralise even if not all instruments are reported in real-time.
I see clear benefits for the buy side with more centrally governed data
supporting an improved price formation on the market.
CSDR preparations for the buy-side trading desk by
K&KGC have flagged this upcoming regulatory requirement
to heads of trading and recommended that they analyse the
root causes for failed settlements within their firm to prepare
accordingly. We think the review should be done from multiple
perspectives looking at types of asset classes and trades as well as
analysis by counterparty. Settlement will likely have an increased
importance in formal counterparty reviews in the future.
Vincent Dessard: I fully share your view that ‘settlement’ will be at
the heart of the upcoming development for multiple reasons.
The CSDR settlement discipline proposes penalties, which will be a
major change and additional pressure on market participants to
settle their transactions.
The regulatory aspect of the buy-in regime is what concerns me
the most. Specifically, the fact that the failing counterparty may
be imposed to pay for all costs endured by its counterparty in OTC
I would recommend that buy-side firm’s traders and middle office
are appropriately trained and counterparty contracts are adjusted in
order to adapt to mandatory settlement lead-times.
We would recommend that MiFID II investment firms set aside
efforts to analyse their settlement flows, especially around securities
borrowing, recall time as well as fail recovery mechanisms. Buy-in
procedures might become extremely costly, especially for OTC trades
(which is frequent for large or less liquid trades).
RTS28 reporting changes for 2019
The buy side and vendors have all reported that the RTS28 and
RTS27 reporting initiatives in 2018 have, as yet, not resulted in any
added value for their decision making. What changes would the
buy side need to adapt in their 2019 RTS28 reporting?
Vincent Dessard: This question would benefit from answers from
From a buy-side perspective, I would agree that the benefits of the
RTS27/28 reports are not yet visible. Consolidated tape will better
serve the buy-side’s objectives.
From a regulator’s standpoint, the benefits of the RTS27/28 are more
obvious. These reports were primarily developed for their benefit.
The regulators are currently spending a lot of time analysing and
compiling the new types of data. You can for example already find
more detailed ESMA analysis in their report on the use of derivatives.
From my perspective, the ongoing effort by the authorities will allow
for much quicker and more surgical fixes” when the next crisis will
Systematic Internaliser regime for fixed income.
In contrast to the previous heated equities trading discussions,
the fixed income buy-side traders have not raised any concerns
about the impending systematic internaliser regime for fixed
income. What are your perspectives about this subject? If it
happens, will it be business as usual?