[ THOUGHT LEADERSHIP | THE SWISS STOCK EXCHANGE]
market data processing systems
and workflows, launching
the MDDX feed. The Swiss
Stock Exchange improved its
market data offering with more
granular timestamping up to
the microsecond; enhanced the
accuracy of its machine time
management by synchronising
its computer systems against an
atomic clock; adopted the unified
UTC time-zone when allocating
execution/publication timestamps
and improved overall content
through the implementation of
MMT (Market Model Typology)
trade flags.
Improving data standards
Comprehensive data standards
are absolutely pivotal insofar as
they help facilitate interoperability
between multiple counterparties
in complex chains of computer
systems across several legal
entities. In turn, this minimises
industry costs by reducing
the overall development and
integration effort. This also
mitigates the risk of erroneous
information interpretation, which
could otherwise lead to potentially
incorrect transaction processing
and/or compliance breaches .
ESMA ordered the mandatory
use of a broad set of existing
ISO standards across MiFID II
implementation regulation. As part
of broader post-trade transparency
requirements, the EU Regulator
has been very demanding on the
unambiguous identification of
trades that would do not originate
from transparent lit trading venues.
Such identification methods are
known as trade flagging, and there
was until recently no standard
around this activity.
Trade flags are crucial for post-
trade transparency purposes.
They are embedded in execution
messages and provide vital
38 // TheTRADE // Spring 2020
information about the nature of
price formation; the availability
of pre-trade transparency; the
immediacy of publication; the
validity of the trade details and the
uniqueness of the specific pricing
information. Prior to MiFID
II, individual venues generated
their own proprietary trade flags
without any coordination. It was
therefore difficult for end-users to
assess the meaning, reliability and
true origin of the flags.
MiFID RTS1 and RTS 2 prescribe
a detailed list of trade flagging
obligations, all listed in a sequential
manner. FIX transformed them
into a well-structured, logically
hierarchised and fully documented
data standard named Market
Model Typology -MMT. MMT
v3.04 is an effective operational
solution for complying with
MiFID trade flagging obligations.
It is optimised for efficient
implementation in data feeds,
display services and databases.
Today, approximately 80% of all
equity trade messages in Europe
carry MMT codes, although this is
expected to rise to 95% by the end
of 2020. The industry is looking at
widening the use of the existing
MMT trade flagging standards into
non-equity markets such as fixed
income.
Challenges to be resolved
The role of trading venues in
generating reliable market data
cannot be understated. Trading
venues have an end-to-end
insight over the order-transaction
lifecycle. This gives them an
informed view on how to deliver
a fully compliant, immediate
and meaningful data output,
including the correct allocation
of the appropriate trade flags on
public trade messages. Moreover,
the industry’s long-held tradition
of embracing common data
standardisation initiatives has also
played a crucial role in ensuring
reported data is of excellent
quality.
However, the situation is less
straightforward for SI/OTC trade
reporting activities. This is because
the regulatory guidance on the
issue has been quite limited. It
is unlikely that identical OTC/
SI trade scenarios would result
in similar trade flags on outgoing
market data messages. Unlike
trading venues, downstream
APAs (approved publication
arrangement) and data vendors
do not have a full oversight over
the order-transaction lifecycle,
meaning it is harder for them to
validate the quality of the data.
A potential future Consolidated
Tape would face the exact same
challenge.
To solve this data quality issue,
the industry needs to; document
the valid trade reporting scenarios;
agree on appropriate trade
flagging conventions; make sure
there is broad acceptance and
understanding of the proposed
solution; and cooperate with
regulators in order to achieve data
excellence.
The industry has already started
some initiatives in this space. FIX
recently created dedicated working
groups to identify and document
the most frequent OTC/SI trade
reporting scenarios. In addition,
FIX working groups will submit
a view on the appropriate post-
trade transparency processing,
including a suitable trade flagging
recommendation.
In short, data integrity remains
a challenge under MiFID II/
MIFIR. While we have improved
the granularity and accuracy of
data originating from venues,
more coordinated industry effort
is needed to bring OTC/SI data
quality up to the same standards.