Conference Dailys TRADETech Daily 2018 | Page 17

THETRADETECH DA I LY he revised Markets in Financial Instru- ments Directive, or MiFID II to use its more commonly known name, has been a long time coming. A decade after the global credit crisis shook the capital markets to the core and pushed some of the largest institu- tions to the very brink of collapse, regulators have been working flat out to ensure new rules are brought in to increase investor pro- tection and market transparency. And so, after years of blood, sweat and tears leading up to the introduction of the new regulatory regime, 3 January came and went with only the barest of ripples to disturb the markets. The early days of the new regime haven’t thrown up the kind of turmoil some pessimists predicted, so far at least, failing to stunt activity at major asset management firms throughout Europe. “To be honest, it feels like business as usu- al,” said Christoph Hock, head of multi-asset trading at Union Investment. “There were not any major disruptions or a drop in facilitation of liquidity across all asset classes in the first two weeks of MiFID II. “For me, it’s a continuation of recent trends we’ve seen and after running a multi-asset trading desk for two years now, we are run- ning the business the same as we did before. most noticeable change for McLoughlin has been around reporting requirements, but even this hasn’t been too much of a burden to bear so far. “The only real change in day-to-day opera- tions is ensuring we have our approved publi- cation arrangement (APA) up and open at all times on our desktops in case there are trades we need to report ourselves. Even then, there have so far been only a few cases where we have had to do this,” he said. Reporting concerns Changes to trade and transaction reporting processes under MiFID II have proven to be one of the most contentious and complicated parts of the new regulatory regime, requiring firms to process vast quantities of new data, and establish and maintain relationships which had previously not existed to ensure reporting runs smoothly. “Day-to-day there has been a lot of system checking to make sure they are working as expected,” said Neil Bond, head of trading at Ardevora Asset Management. “There are extra fields we are getting now so we need to make sure brokers are populating them cor- rectly, the data is feeding through efficiently and it is being reported properly. I can’t 48% 38% 2% Perfect more to do on implementation, particularly on reporting. “A key challenge for firms in implementa- tion was the expanded transaction reporting requirements,” he said. “These involved a step change in both the volume and quality of data we receive regarding transactions taking place in the market. “The FCA, alongside ESMA, undertook extensive technological work to be ready to receive, interrogate and ultimately learn from this dataset. We estimate that under MiFID, we will capture some 30-35 million transac- tion reports a day, up from 20 million before its introduction. There is a determination on our part to exploit the full possibilities of these data to support our efforts to deter, detect and punish market abuse.” While Bailey warned that the regulator would not be showing forbearance to firms that prove incompliant with MiFID II, it’s clear that the FCA is aware of the scale of the challenge firms are grappling with, even with the years-long lead time the industry has had to prepare. Since the 3 January implementation date, the FCA has made several moves to bolster up its oversight of MiFID II. In mid-February the regulator launched a request for input So... how’s it been so far? 6% 6% It’s been okay, but we had to work hard to get to this point In this context, we don’t need the regulator to tell us what to do,” he added. For Matthew McLoughlin, head of trading at Liontrust Asset Management, it has been a similar experience to Hock, as he described the industry’s approach to the new regulatory landscape as being more cautious, but still business as usual nonetheless. He added that volumes were slightly lower in the first week of implementation, although there were expectations for this to occur and has since seen activity pick up again. The Too early to tell Not great imagine that process has gone smoothly for anyone because we have heard that the test environments were available very late.” It’s not just market participants that are cognisant of the current issues around report- ing and what needs to be addressed in future. Speaking at an event held by the Internation- al Capital Market Association in early March, chief executive of the Finan cial Conduct Authority (FCA), Andrew Bailey, said the effects of MiFID II will only play out in full over a period of time, and that there was still MiFID T THE OFFICIAL NEWSPAPER OF TRADETECH 2018 I’ve quit my job due to stress from the industry, looking to review how technology can help firms to better meet re- porting requirements and improve the overall quality of the data submitted, on the back of its two-week ‘TechSprint’ which resulted in proof-of-concept which allows reporting rules to be machine-readable and executable. First hurdle MiFID II hit its first major hurdle just one week into the new regime when the Europe- an Securities and Markets Authority (ESMA) Issue 1 17