MiFID II marked a sea change in the approach to the handling of order, trade and transaction data. Rigorous new requirements around data capture, analysis, reporting and record-keeping made the communication of data a central theme in ensuring trading systems were MiFID II compliant, and connectivity – between external and internal systems, databases and processors – the foundation stone.
The implications for financial firms’ trading infrastructure are extensive.
From an external standpoint, firms need to be able to engage with constantly changing API connections to the growing number of trading venues – whether Regulated Markets, Multilateral Trading Facilities (MTFs), Organised Trading Facilities (OTFs) or Systematic Internalisers (SIs). They also need to deal with the various new order types and market models on offer, including Large-in-Scale, Continuous Auction and others.
From an internal perspective, as part of their post-trade process, firms need to ensure that their internal OMS records match the venue’s (or broker’s) view of the trade. For this to happen, market participants require post-trade (or ‘drop copy’) connectivity to their trading venues or counterparties, and they must normalize the trade data to facilitate an internal reconciliation / validation task. Firms must also be capable of handling trade and transaction reporting to the new Approved Publication Arrangements (APAs) and Approved Reporting Mechanisms (ARMs).
MiFID II also requires firms to deploy connectivity to data repositories, trading systems and other sources of information, including real-time or intraday data required for best execution and other reporting obligations. Firms must bring together information on all orders, including child orders, to create a single, coherent record or ‘biography’ of each order. This is complicated by the need to draw upon the various sources of reference data required to understand how to classify the firm’s activities at any given point in time.
For example, the firm may need to draw upon a range of data to determine who has responsibility to report a trade for a specific instrument involved in a transaction, which may depend on counterparty, instrument, buyer or seller, or whether it qualifies for deferment. The resulting trade record then forms the basis of regulatory reporting, and is also part of the evidence that supports the firm’s best execution policy and processes, as well as its response to regulatory queries about potential market abuse. The extent of the trading infrastructure upgrades needed to ensure the right data is accessible at the right point in the trading workflow at the right time, means that for many firms there is still a long way to go to achieve full and sustainable MiFID II compliance.
Central to sustainability is a consistent approach and a coherent strategy when it comes to connectivity, messaging and data management. Solutions such as Itiviti’s UL Bridge can assist firms in implementing centralized data management processes, thereby scaling up the trading technology stack to handle the volume of messages and governing message traffic to and from the core trading system, and external to that system itself. It also provides comprehensive support for developing, testing and deploying FIX connectivity, and can assist in meeting all MiFID II trade reporting and reference data requirements.