THETRADETECH DAILY THE OFFICIAL NEWSPAPER OF TRADETECH 2023
Regulation
Mifid post-Brexit : The current state of play
FOLLOWING RECENT REGULATORY MILESTONES IN THE UK AND EUROPE , THE TRADETECH DAILY EXPLORES MIFID II ’ S CURRENT STATE OF PLAY ON EITHER SIDE OF THE CHANNEL .
... continued from front page tape should take in Europe .
“ I have worked on this text for over a year and following months of intense but very cooperative and positive negotiations amongst the political groups , we have achieved a compromise that reflects the level of ambition that the EU capital market needs ,” said Hübner in a statement at the time of the announcement .
Moving forwards The first European Council Working Group under the Swedish Presidency convened on 31 March and now , in the same week as TradeTech takes place in Paris , Brussels sees the European Council , Commission and Parliament enter Trilogue discussions from 18 April .
“ It ’ s fair to say that there will probably be three key topics up for discussion and negotiation : the consolidated tape ( for equities more so than for fixed income ), payment for order flow ( PFOF ), and the framework for systematic internalisers ,” confirmed Nicolas Rivard , head of advanced data services at Euronext , speaking to The TRADETech Daily .
“ And to be honest , it is the first of these that is likely to be the most debated – it has been a fairly tense discussion so far and it ’ s fair to say that there there is still room for improvement in the text when it comes to transparency , and in order to improve fragmentation and competition .”
A consolidated tape The most recent proposal in Europe suggests a real-time pre- and post-trade consolidated tape per asset class . The model will reimburse all data contributors as opposed to incumbent exchanges and also places greater emphasis on data quality . However , caution should be exercised before anyone gets their hopes up . While the vote finalised the European Parliament ’ s negotiating position and pushed the review process through to its final stages in Trialogue after over a year of back and forth , it still needs to be debated in parliament . Meaning the final result – expected to be announced by early next year with rules implemented in the next 24 months – could be systemically different to the current text .
“ The initial proposal from the Commission has been considerably changed ,” agreed Rivard . “ It looks now as if it will be very close to real-time , which will give market participants a much more integrated view . It will be a very live tool , which will be helpful – for example , it will allow for instant monitoring of best execution – and we also think that it will be a profitable exercise for the provider of the tape , it will cover its own costs .”
The suggestions put forward by MEPs as amendments to the Hübner report in Q3 of last year range from real-time to a one minute or 15-minute delay on data , while others champion a post-trade tape only . Realistically , participants should ready themselves for some degree of compromise . Oh , to be a fly on the wall for those discussions .
“ While work remains until a final framework is agreed , the amendments proposed by the European Parliament and European Council represent significant improvements on the initial text ,” said Cboe Europe in a statement at the time of the vote .
The second of the milestones achieved in February was an announcement on 2 March from the UK ’ s Financial Conduct Authority ( FCA ) revealed by The TRADE confirming that the UK was ditching plans for multiple tape providers in favour of a single consolidated tape model . The announcement followed the Edinburgh reforms at the end of last year that promised to deliver an environment that supports a consolidated tape by 2024 .
“ After listening to representations on this issue and considering our competition duty , we believe a model of a single provider chosen by tender for a specified duration could offer an effective approach to dealing with the practical delivery of a tape for bonds as well as offering some of the benefits of competition through competition for the market ,” said the FCA ’ s Stephen Hanks in his note to participants and trade associations .
“ Having a single provider will need to be coupled with suitable measures to mitigate the lack of competition between authorised consolidators and these will be part of the design considerations that we will be asking for feedback on .”
Concerns also remain – with regards to both proposals – as to how the accountability for accurate data will be handled . Who will have responsibility for ensuring that the data submitted to the tape is correct – and who will clean , process and challenge incorrect data ? Will this be the responsibility of the venues themselves , or of the tape provider ? Market participants agree that this is a key issue , and one that needs to have a clear process laid out in terms of process and protocols in order to ensure confidence in the end-result – without which , the tape would be meaningless .
“ In the end , the CTP is not responsible for the data which is provided by the contributors ,” warned Rivard . “ So there needs to be a feedback loop , or a virtuous circle , established from the start and enshrined in its development in order to counteract any challenges on data quality . Because if the data quality is poor , the venture will be a failure .”
As it stands , the tape has evolved to become an area of convergence for regulators in the UK and Europe - but hang on to your hats , because the ride isn ’ t over yet .
Where to converge ? The approach to regulation favoured by the UK and Europe does overall seem more collaborative as of late than in those first frosty months following Brexit .
This can perhaps most clearly be seen through the consistent approach towards PFOF from both
6 THETRADETECH DAILY