The six month countdown to MiFID II – are you ready?

With just over six months to go until the Markets in Financial Instruments Directive (MiFID) II and its accompanying regulation, the Markets in Financial Instruments Regulation (MiFIR), enter into force, firms should already be aware of the impact these changes are going to have on their operational and technology practices and be putting the finishing touches to their preparations to comply.

There is certainly no shortage of literature anticipating and advising market participants about some of the key tenets of the regulation coming down the pipe and the considerations that need to be made to ensure compliance. Indeed, we are among the many firms and service providers that have taken the time to advise and work with clients in their efforts to comply with the regulation. In particular, we have been extensively engaging with our clients with regards to the implementation of Article 26 which relates to transaction reporting requirements. The purpose of part of the regulation is to enable competent authorities to conduct market surveillance to enable the monitoring of the fair and orderly functioning of markets and the activities of investment firms, as well as to detect and investigate potential cases of market abuse. There is further market commentary on our website on the topic of transaction reporting:

Since the publication of the Regulatory Technical Standards (RTS) for transaction reporting in July 2016, firms have made great headway in understanding their reporting obligations but there do remain some uncertainties around the rules, including those relating to static data that need to be reported. For example, it is not clear how firms will source, and manage in scope International Securities Identification Numbers (ISINs) that are not part of the European Securities and Markets Authority (ESMA) database. Additionally there is little clarity over how Alternative Investment Market (AIM)-traded stocks, that have an ISIN but that are not recognised by ESMA, will be handled and whether additional data will need to be reported.

There is also confusion as to how firms determine the correct information relating to the client type reporting field. This refers to the fact that every buyer, seller and decision maker must have a natural person identifier, legal entity identifier (LEI) or market identifier code (MIC). For firms to know which identifier they need to input into the field, they must be able to determine the correct client type.

It is also unclear at this stage who is responsible for updating the static data. For example, what might happen when a broker’s client gets a new passport or a firm’s LEI lapses and they obtain a new one? If a broker is reporting on behalf of their client, unless they are informed about the changes they risk being non-compliant with the regulation.

These are just a few examples of the questions that remain around some of the reportable static data under MiFID II. To compound the issue, even though a large number of firms have sourced and collated the requisite data as far as is possible, some are now finding that their current reporting capabilities are actually not robust and flexible enough to support the increase in volumes of reportable data and are working with service providers like Torstone Technology to make the necessary changes by doing away with legacy systems and leveraging our back-office technology. In fact we have been working with a number of firms in recent months to put their systems into our user acceptance testing (UAT) environment – please visit our website if you would like to find out more.

The window of preparation time is closing quickly. As such brokers and other market participants should be spending the next six months closely scrutinising their operating models and technology platforms in order to ensure they are compliant in time for the forthcoming deadline on 3 January 2018. Partnering with the right vendor today will go a long way to alleviating any challenges that lie ahead. To find out how Torstone Technology can support you please get in touch.

June 20, 2017

Brian Collings

Chief Executive Officer Torstone