The recent and ongoing speculation around the possible delay in MiFID II’s implementation date – currently scheduled for January 2017 – should not distract market practitioners from the task in hand: to assess their obligations under the regulation and take appropriate steps towards meeting a tight deadline. Even a delay of one year does not create much breathing space.
So what should firms be doing now?
First, now that ESMA has published its final guidance, the scale of the requirement is clear. Firms need quickly to understand how they are affected – and whether certain business activities are worth the pain of compliance.
Key requirements – or areas of focus – identified by Itiviti clients include the following:
– Systematic Internalisers (SI)
– Enhanced transparency
– Best Execution
– Clock synchronization
– Pre-trade risk
– Instrument definition management
– Trading algorithm testing
– Management of all MiFID parameters (LIS, SMS, SSTI etc.)
Each of these aspects will require significant action. Last month, we published a paper – ‘MiFID II: Practical Considerations of Gainful Compliance’. In it, we offered suggestions on how best to approach each (you can download the paper here ).
As part of our research for this paper, we surveyed select market participants on how they planned to approach the incoming regulation. From their responses, it is clear that a flexible approach to market structure changes is required to minimize risk in responding to the new European trading landscape and the expected and unforeseen innovation that will accompany the adoption of MiFID II.
Certainly, the marketplace has already begun to respond, with venues and ISVs announcing solutions to specific elements of the regulation. Any approach to compliance needs to support the ability to respond to these market-led developments, so that financial institutions are able to take advantage of emerging solutions.
Our survey also underscored the perceived role of incumbent ISVs in firms’ planned response to their MiFID II obligations. Particularly given the tight deadline the marketplace is facing, survey respondents expected to include innovations from their ISVs – instead of building, or as a complement to, their own solutions – for help in meeting the emerging requirements.
As part of the paper, Itiviti has developed a checklist for those looking to their ISVs as they assess their MiFID II obligations:
– To what extent has your organization engaged with the regulators to understand client obligations under MiFID II?
– How far can we deploy MiFID I capabilities to meet MiFID II requirements?
– How will clock synchronization be handled?
– Storage of order and trade data is one thing, but how do we extract and analyses the data to provide meaningful information to the regulator?
– How is market abuse monitoring structured?
– Is the data model adapted for the new MMT (Market Model Typology) standard?
– Is there capacity enough to handle the anticipated growth in market data volumes?
– How easy is it to deploy a Systematic Internaliser engine, with low cost and short lead-times?
Whether or not MiFID II’s implementation date is postponed, now is the time to get to work on your firm’s response to this wide-ranging regulation. There are no short cuts. But ISVs can play a vital role by providing resource, expertise and technological knowhow. It’s worth asking your ISVs these questions before you commit to working with them on this project
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Risk & Compliance Jim Northey, Senior Vice President Strategy and Research at Itiviti, explores the topic of regulation in a post-globalization environment. In the wake of Brexit and the US election, are we moving away from unified regulatory equivalence to regulatory arbitrage, with single countries taking advantage of regulatory changes to attract market share? February 5, 2018
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