MiFIR Casts Ominous Shadow on European Horizon

MiFID II and its accompanying regulation, MiFIR, initially proposed in October 2011, will subject all investment firms in the 31 member states within the European Economic Area to a more stringent regulatory framework around, among other things, their trade reporting requirements. Brian Collings looks at the impact these changes might have on firms’ operational and technology practices when they come into force in January 2017.

The Markets in Financial Instruments Directive (MiFID) II Regulatory Technical Standards (RTS) and its accompanying regulation, the Markets in Financial Instruments Regulation (MiFIR), published in September 2015, are set to introduce sweeping changes to the trading of securities in Europe.

The Directive has expanded the scope and level of prescription of investment firms’ transaction reporting obligations, creating areas of overlap with the European Market Infrastructure Regulation (EMIR) trade reporting regime, and will apply to a much wider range of financial instruments and require the disclosure of additional mandatory data. This article explores some of the major components of the transaction reporting obligations and the preparations that firms should be making now to ensure compliance with the 3 January 2017 deadline.

MiFID II significantly extends the scope of the existing reporting regime to all financial instruments that are traded on Multilateral Trading Facilities (MTFs) or Organized Trading Facilities (OTFs). In addition, it will apply to all financial instruments for which the underlying is directly or indirectly (through an index) executed on a trading venue. This will encompass a broader range of asset classes, from commodities and foreign exchange to interest-rate products. It will also triple the number of reportable data fields, from 26 under the current Mifid to 65 at the start of 2017.

Most Significant

One of the most significant changes to the transaction reporting requirements is the obligation to supply “natural person identifiers.” The details that need to be supplied include an ID code for the decision-maker who made the decision to deal, and, if different, the individual executing the trade. Additionally, if the trade was generated or executed by a computer algorithm, the relevant identifier code for the relevant algorithm(s) will also need to be supplied. Investment firms will also be required to report client ID codes by contacting individual clients for either a national passport number or national identify card, ensuring that this information is reflected across the entire order transmittal and execution chain.

It is no secret that data protection issues will be of concern when it comes to reporting trader and client identifiers. While ESMA has assured that data protection measures will be put in place, investment firms must ensure that they have established the requisite security protocols regarding permissioning and determining who within their firm is able to access such sensitive data.

Expanding Scope

Furthermore, instrument classification data, while already a MiFID requirement, will expand in scope to include all asset classes. This can be made all the more complex if firms are using multiple order management systems for each asset class that they trade. However, so as not to increase the operational burden, firms can benefit from directing their trade flow from different systems to a consolidated post-trade platform that is able to facilitate this transaction reporting. Furthermore, transaction reports for physical short-sales of EU-listed shares and EU sovereign debt instruments will need to include a short-sale flag, also a function that will need to be performed by the front office.

These are just a few examples of the data items that will need to be reported under Mifid II. Indeed, carrying out a field-by-field analysis to determine how to source and validate the data will be a significant challenge. Aside from the data collection, firms will then need to account for data security, data privacy, and data quality requirements on the information collated from across many disparate systems. In fact, in some cases, firms may find that their current reporting capabilities may not be robust and flexible enough to support the increase in volumes of reportable data and as such upgrades and changes will need to be made. For those firms that are subject to other reporting regulations such as EMIR and Dodd-Frank, it would be wise to look for synergies across different regulatory regimes to simplify the mandated reporting processes.


Given the relatively short timeframe that firms have until the regulation comes into effect, they need to start making preparations to comply now. This is particularly important as transaction reporting is one of the key priorities for national regulators under MiFID II, with some regulators already warning that there will be no leeway for non-compliance.

Preparations should begin with a comprehensive review of exactly what data will need to be reported and from where it can be sourced. This should be followed by an assessment of current reporting practices, which in some cases will involve doing away with legacy systems and manual processes entirely, to allow sufficient time for any major changes to be made and to put these systems into user-acceptance testing environments (UAT).

By Brian Collings is CEO of Torstone Technology, a London-based provider of securities-and derivatives-processing technology to the capital markets.

November 3, 2015

Brian Collings

Chief Executive Officer Torstone