MiFID II posed a significant amount of challenges, and the focus for firms in the immediate aftermath of the January 3rd deadline was basic compliance. In many cases, this has meant finding workarounds that meet the criteria laid out in the legislation, but not necessarily in the most effective or sustainable way. More importantly, these interim solutions lack a value add factor, meaning that they are not helping firms serve themselves or their clients any better than they were prior to MiFID II coming into play.
Now that the dust has settled, the focus for firms should therefore be to go further and start exploiting both data and technology to improve workflows and ultimately enhance their business.
We can expect any solution for Systematic Internalisation to contain at least the bare minimum requirements around publishing stock prices close to current market conditions, store data for record keeping and RTS27, and publication of trades to APAs. Supporting multiple asset classes should be possible, at least as long as they can be traded like stocks. To allow for the capturing of events between sales and trading, a basic Request For Quotes workflow should be available as well.
A post-MiFID II landscape has caused further market complexity as well as increased competition. The post-MIFID II landscape now features even more venues, with completely new market models such as continuous actions, block dark pools and Systematic Internalisers. Furthermore, execution post-MiFID II is now governed by an extensive list of parameters such as Large in Scale (LIS), Liquidity classification, Standard Market Size, as well as waiver statuses and much more. All of these considerations must be embedded into the transaction flow in general and into the SOR in particular. This diverse and fragmented set of liquidity providers would be very difficult to access – while taking sufficient steps to follow Best Execution – without a SOR designed for these conditions.
MiFID II requires investment firms to monitor all trading activities, for example in terms of execution quality, algorithmic trading behavior, market making activities and client dealings. To minimize the risk of delaying implementation and missing regulatory deadlines, firms should identify all sources that are producing any data needed for correct reporting and monitoring. In addition, the output data requires normalization and enrichments based on classifications.
Athough the first period after the application of MiFID II has granted firms some leniency, regulators are now likely to start imposing stricter interpretations of the regulations, especially regarding Best Execution reporting.