Who makes the decisions around here?

Recording the execution decision maker is a new requirement under MiFID II. Working out how to populate that field turns out to be trickier than expected. Take a buy-side that gives strict execution instructions on how to execute its agency care order. On the one hand, you could argue that the sell-side made no decisions and therefore records NORE (MiFID II speak for client).... Read More

The MiFID II waiting game

We are now well into October and market participants are still waiting patiently for ESMA to provide details of instrument data for MiFID II. The industry is keen to consume important data to drive functionality and trading strategies; basics such as which instruments are in scope, which are classed as liquid, what is large in scale and where the equity dark volume caps will fall.... Read More

Bottlenecks ahead

ESMA issued a public statement yesterday recognising that there is just not enough time to review all the pre-trade transparency waivers and position limits before MiFID II comes into force on 3rd January. Rather than create an impasse they have, thankfully, opted for a pragmatic approach to get things moving along. To smooth the path, in the absence of an ESMA opinion, the national... Read More

A position of responsibility

As the MiFID II implementation date draws closer, implications for US firms continue to emerge. One area raising questions in the listed derivatives space is around position reporting and commodity position limits. Under MiFID II, EU investment firms are required to submit position reports to the regulators. Position limits under MiFID II are applicable to a “person”... Read More

Make room for some blocks

Block trading is unique as it enjoys rare bi-partisan support by practitioners and politicians alike. Unfortunately, relatively few people know how to navigate among block venues, due to their inherent opacity. To make matters worse, even fewer market participants command orders exceeding the Large in Scale (LIS) thresholds and decide to execute them in one go rather than put them... Read More

For infosec the only way is global

With information security rapidly gaining prominence over the last few years legislators have jumped into action to improve safeguards and public confidence in IT systems. While information security concerns prevail across all industries, in financial services due regard for them is absolutely crucial to the maintenance of functioning markets. Just imagine CCPs losing data on their... Read More

Commodities ancillary test moves forward

The commodity derivatives ancillary test is easily one of the most complex pieces within MiFID II, making the double volume cap in equities look more like an amuse-bouche. The new test determines whether a firm’s dealing in commodity derivatives is merely an ancillary activity, allowing it to stay out of scope for MiFID II. Trying to summarise the test in a few simple slides... Read More

A case for regulatory freeze?

Market participants are naturally worried about the immediate costs of regulation, some of them still uncertain about the future benefits. But with all the twists and turns on the road to regulatory change, meeting the requirements imposed by regulators is no easy task. Whatever the legislation, the politicians agree on the broad principles and set a go-live date and then the clock... Read More

Putting MiFID II into practice

As firms march headlong towards 2018 the detailed implementation of MiFID II is well and truly underway. Even in the equities camp where MiFID II, remember, is an intended adjustment to existing rules, the practicalities of trade and transaction reporting mechanics are evolving. Whether ESMA ever envisaged such a complex campaign is debatable, but early advocates of splitting MiFID... Read More

The same, only different?

For MiFID II to work, the industry must have a clear understanding of what constitutes a single instrument. For cash products such as equity or debt this is straightforward, but in derivatives the concept of a single instrument isn’t really appropriate and things quickly get complicated. Looking ahead, it’s feasible that an OTF or SI offers trading in a bilateral cleared... Read More

The far reaches of reporting

Trade and transaction reporting rules under MiFID and EMIR can easily be confused, even though they have different requirements, different formats and, most importantly, different scopes. To recap, MiFID trade reporting is a short message to the public, intraday, for the purpose of price discovery; transaction reporting is a long message to the regulator, at the end of the day,... Read More

MiFID II – a catalyst for innovation

Trading in auctions – in contrast to continuous matching – has long been poised to grow under MiFID II, due to the technicalities in the pre-trade transparency regime and its waivers. With the go-live date edging ever-closer, the regulation has become a catalyst for innovation instead of being merely a cost of doing business. Exchanges are currently rolling out new and... Read More

A division of labour for SIs?

The current debate between ESMA, the European Commission and market participants on the establishment of networks of systematic internalisers (SIs) is unsurprising given the amount of regulatory change and the potential for market innovation. Last week ESMA expanded on what’s behind its thinking on the topic in its most recent Q&A. ESMA’s objections to such networks... Read More

MiFID II marches on

The last day in March represented a significant milestone on the crowded MiFID II timeline, with the remaining regulations and directives now finally published in the EU Official Journal. If you recall last year’s proposals for delaying implementation until January 2018, there were some far from subtle hints that the new deadline assumed the transpositions and relevant technical... Read More

No action sometimes better course of action

Implementing pan-European financial regulation is no easy feat. Finding agreement across 28 member states and translation into vastly differently legal systems is a true challenge. It comes as no surprise that those projects are regularly subject to delays. Against that backdrop, it is most welcome that ESMA is again requesting the power to issue a no-action letter like their international... Read More

Not all tails wag the dog

Modern atomic clocks tick along much more consistently than the earth manages to rotate around its own axis, which varies due to climatic and geological events. Thus, every so often the global masters of time insert a leap-second in order to align atomic clocks and earth rotation. Unlike changes in winter/summer-time, humans don’t really notice it. Even most software applications... Read More

Let’s agree to disagree

With hindsight, last year’s discussion about the differences in defining direct electronic access (DEA) under MiFID II and RegAT may have been somewhat premature. Firstly, with the change in both the US administration and the CFTC leadership it is now uncertain how RegAT will be progressed. Secondly, over the last few months it’s become clear that we can’t even... Read More

A year to go – more or less

With just 364 days left to go, the MiFID II go-live date looms large. But with complex regulation spanning several hundred pages of text it is no great surprise that some MiFID II deadlines will come in earlier than 3rd January 2018, while others leave more breathing space. For example, trading venues must submit their waiver applications to their relevant competent authorities... Read More

Uber transparent?

ESMA has today published the latest Q&A on investor protection. The document spans many different topics, but what sparked my interest in particular are the comments around the best execution quality reports. Under MiFID II brokers have to publish their top 5 execution venues. Firms trading as non-members (i.e. via another broker) are asking whether it is the exchange or the... Read More

That’s your limit!

As is so often the case with some of the lengthy documents that make up the Shakespearean drama that is the MiFID II implementation, the devil is in the detail. The technical standards on position limits for commodity derivatives are a good example. Right at the very end, just before President Juncker’s imprimatur, is a little tidbit suggesting that competent authorities will... Read More

The regulation holiday effect

Global harmonisation of financial regulation is high on the wish list of many trading firms and, in one sense at least, the regulators in Europe and the US are pretty well harmonised. Both have a tendency to publish long-awaited documents right before major holidays. Last week we saw another example of the regulation ‘holiday effect’ with the CFTC publishing its consultation... Read More

A calmer approach to position limits

As we edge ever-closer to MiFID II implementation, the position limits debate is once again underway in Europe. Under the new rules the UK regulator is required to impose position limits on all commodity derivatives listed on UK trading venues. In its Consultation Paper the FCA states: “The aim of the new regime governing commodity derivatives trading in MiFID II is to prevent... Read More

ESMA sets a date for SI compliance

Intended to promote practical convergence and common supervisory approaches and practices, like EMIR and MAR before them, the MiFID II Q&A is fast becoming a favourite on my browser. In its recent Q&A on transparency topics, for example, ESMA has clarified for those firms wondering if, when and how to become a systematic internaliser (SI) that they will have until September... Read More

Weighing up best-ex and best innovation

Competition amongst exchanges was a defining theme in MiFID I, but when it comes to best execution and trading venue fee structures, MiFID II might reverse some of that. MiFID II acknowledges that exchanges compete on fee structures and even establishes some basic rules (see RTS 10). But by tightening the bolts on best execution obligations, the new regulations can present conflicting... Read More

Golden aspirations

To achieve MiFID II’s aim of greater transparency, having a proper golden source of instrument data is key for every market participant. Fortunately, under the new rules, ESMA is required to publish a list of all financial instruments traded on all trading venues and systematic internalisers, enriched with useful, related information such as MiFIR transparency and liquidity... Read More

The clock’s ticking on MiFID’s extra time

As we edge ever-closer to January 2018, the finer details of MiFID II are yet to fully surface, particularly with regard to RTS 22 and the rules around transaction reporting – undeniably one of the larger pieces of the new regulation. There is still much work to do when it comes to finalising the detailed requirements and the Level 2 RTS are still not published in the Official... Read More

ESMA sheds light on dark trading caps

ESMA today published its first Q&A on MiFIR transparency topics which focuses on the double volume caps (DVCs) in equity markets and clarifies how markets can transition to the new DVC regime. The document outlines how to calculate the market share of non-transparent trading for instruments only coming in scope under MiFID II (think ETFs, for example). ESMA will make the assumption... Read More

The long and the short of it

MiFID II requires trading venues to store personally identifiable information (each potentially 50 characters long) relating to the traders, investment managers and clients of the orders they receive. While it might be very convenient for surveillance to have order book data married up with personal data, this requirement is not only an additional burden to system load but also... Read More

The ever-growing MiFID II shopping list

Amongst other things, MiFID II’s transparency reforms intend to clean up the quality of post-trade data and eradicate duplicate prints – long-suffered bugbears for investment firms. But in simply stating the rules, ESMA has left buy- and sell-sides puzzling over just how significant a change this is. A look at the cost benefit analysis the regulator published in September... Read More

Tumbling down the rabbit hole

With much of the MiFID II Level 2 text close to being finalised, the markets continue to dive even deeper into the details and home in on Level 3 material, such as the Q&As and ESMA guidelines. One such detail lies in the phrase “traded on a trading venue” which is used in MiFIR to define instrument scope for topics such as pre- and post-trade transparency, systematic... Read More

What’s in a name?

Recent regulations in the US and EU have been driving the adoption of identifiers to make it easier to spot the forest from the trees. But as we move forward it is becoming increasingly obvious the same labels are being tasked to determine risk, enhance transparency and create accountability. One need not look much further than the global legal entity identifiers (LEI). The LEI... Read More

True innovation?

The recent slew of exchange announcements introducing new dark trading facilities in response to MiFID II would appear to suggest that the regulation has triggered a whole raft of innovations. But is that what’s really happening here? Euronext tells us it is planning to introduce a new liquidity discovery service building on its existing iceberg orders. Looking at the detail,... Read More

Light relief for dark pools – but for how long?

The dark pool debate has raged across the globe for some time now and, in every jurisdiction, it’s more often than not accompanied by a smattering of assumptions on almost everything and certain knowledge of almost nothing. Fair enough, in the absence of hard facts, the term dark pool doesn’t really instil a great deal of trust from the outside world. But this lack of... Read More

No summer break for MiFID II

You may have noticed that the MiFID II Regulatory Technical Standards (RTS) continue to roll off the press at a steady pace signalling finalisation of the Level 2 detail. Last week alone seven RTS documents were adopted by the European Commission, including the long-debated RTS 2 on non-equity transparency and also an RTS on registration of third country firms which could become... Read More

MiFID II’s catch-22

Under MiFID II trading venues are required to provide one of two options in order to support members’ testing efforts (RTS 7, Article 10). So exchanges can choose to offer either a realistic testing environment or a testing symbol. As testing can be terribly complicated, different views and opinions about which is better are to be heard across the market. On the one hand,... Read More

The great negotiation

With the Brexit hangover slowly starting to recede it is perhaps time to start focusing on the road ahead. Regarding the immediate future there is at least some certainty, as we can assume that implementing EU regulation in the UK will progress regardless. Both the FCA and the European Commission have correctly pointed out that the UK remains a full member of the EU, with all its... Read More

RegAT – round 2

Regulation AT forges ahead, this time with a Round 2 panel convened on June 10th at which the CFTC focused the discussion on five major sticking points: 1. Amendments to the proposed definition of direct electronic access (DEA) 2. Quantitative measures to establish the population of persons 3. Alternatives to require each person defined as an “AT Person” to implement and utilize... Read More

Regulatory algebra

Algorithmic trading and market access are under increased pressure from regulators everywhere, adding new layers of complexity in the quest for a single, global, normalised trading experience. Buy-sides often use Sponsored Access (SA), Direct Market Access (DMA) or Direct Electronic Access (DEA) via brokers across different regions. With MiFID II and RegAT each defining those terms,... Read More

Phew! No more HFT for me

Some might remember the surprise, back in March 2012, when it became apparent that an individual personal trader could end up being classed as a high frequency trader (HFT) under MiFID II. Admittedly I’m quite proud of my 10 finger touch-typing skills, but I wasn’t sure whether my ability to type really fast could be held against me one day. Finally, after four years,... Read More

CFTC keeps source on the menu

Open commentary for Regulation AT is now officially over, and while the CFTC mulls over the mostly cautious responses there is some time to reflect on how best to prepare for enforcement of the rules. However, the loftiest piece of proposed legislation in the carte de jour isn’t about futures or traders at all, but the underlying source code of the systems associated with them,... Read More

In true MiFID style

The European Commission (EC) has published the first in a series of highly anticipated delegated acts, defining some of the crucial details for MiFID II. Most relevant in yesterday’s document is the unbundling of research and execution fees, where the EC has largely followed the advice given by ESMA back in December 2014. In true MiFID II style, a new acronym is introduced, each... Read More

So much to do, so little time

This week’s closing date for the ESMA consultation, which sets out amongst other things a non-exhaustive list of transaction reporting examples as Level 3 guidance, is a keen reminder of just how much there is to be done for MiFID II. This hefty document, published in December last year, is a crucial step that will allow the implementation to pick up some pace over the coming... Read More

A brief history of on/off-exchange

Hailed by legislators as the new framework to close loopholes, MiFID II will see OTC trading face new restrictions, most importantly in the form of the Systematic Internaliser (SI) and the new trading obligations. As the fog slowly lifts, it’s becoming apparent that these new restrictions could impact market structure in surprising ways. A more detailed analysis shows that... Read More

MiFID II – back to square one

A proposed new law is currently making its way through the Brussels/Strasbourg law-making factory to delay the introduction of MiFID II. There is little doubt that the industry will breathe a sigh of relief when the delay is finally confirmed. However, the proposed new law has also encouraged legislators to consider further changes to the MiFID II Level 1 texts (amendments 1-3 and... Read More

MiFID II delay – a missed opportunity

The European Commission’s long-awaited official proposal for a one year extension to the MiFID II deadline is finally published today. In short, application dates will be pushed back by one year, with the official go-live date now set for Wednesday 3rd January 2018. While the delay comes as a massive relief to many market participants and the regulators, it is also a missed... Read More

Nosey neighbours

Is MiFID II really going to force investment firms to pass around huge amounts of personal, identifiable information? Will competitors and counterparties learn way too much about your business? While many of these concerns may be overblown, there are some valid points to consider. The most obvious one relates to transaction reporting under RTS 22, which will require numerous items... Read More

SMP checks in the balance

Self-match prevention (SMP) is offered by many exchanges – CME, ICE, Turquoise and BATS among them – and by the more advanced order management systems. In most cases, employing an SMP check is voluntary for trading firms; that is important because not every prevented self-match is also a prevented (illegal) wash trade. Some regulatory jurisdictions require intent as... Read More

And the MiFID II award for early guidance goes to…

Amidst the on-going rumblings about delays to MiFID II, and the budget and planning uncertainty this has created, it’s good to see that market participants continue to press on with implementation. MiFID II includes many new obligations for venues and, for investment firms, knowing what the exchanges will do fills a significant piece of the puzzle in their overall plan. Despite... Read More

Who watches the watchmen?

With much of the new financial regulation being passed and implementation for most of it in full swing, supervision is likely to gain more attention in the coming years. Since investment firms and infrastructure providers are largely supervised by national competent authorities, it raises the question who watches the watchmen? In ESMA’s 2016 work programme, the authority... Read More

New year, new regulations

Throughout 2015, many in our industry would no doubt have agreed that MiFID II was fast becoming the single most important EU legislation initiative. With the unofficial – but likely – delay until January 2018, the impact of MiFID II remains far-reaching, but at least this may allow for a more orderly implementation. As the new year begins, it’s time to review... Read More

Keep the pedal to the metal

Earlier this week ESMA called for delays to the MiFID II implementation deadline. So it’s goodbye to punishing timelines and we can all get our lives back! But hold on, before we breathe a collective sigh of relief, things are not quite that simple. Most importantly, it is not ESMA that can decide on a delay, but the European Commission (EC). Even if Steven Maijoor, ESMA’s... Read More

Don’t be fooled by statistics

The definition of algorithmic trading under MiFID II is extremely broad, essentially capturing any functionality that determines any parameter of an order automatically. That begs the question, what order flow qualifies as not algorithmic? Hand on heart, how many traders can claim to exclusively use native exchange order types and not rely on at least one of the friendly little... Read More

MiFID II choice cuts

The overhaul of transaction reporting under MiFID II continues unabated in the latest ESMA drafts, with new obligations and data changes still being introduced. Aimed at improving the quality of data for market abuse investigation, ESMA has introduced a new requirement for transaction reports to be made available to regulators in a common XML template in accordance with ISO 20022... Read More

Doesn’t ESMA time fly!

Looking at the latest changes regarding accuracy of business clocks, now reincarnated as RTS 25, I noticed a number of interesting points in the text. Most importantly, the absence of the usual clause “…applies from 3rd January 2017″, with just the generic phrase stating that the rules will “enter into force on the twentieth day following that of its publication”.... Read More

What’s missing from ESMA’s report?

Yesterday saw the publication of ESMA’s long-awaited report on the technical standards for MiFID II / MiFIR. As well as reviewing every single word of this impressive tome – 1,532 pages spread across three documents – we should consider the wider scope and take note of what the report does not cover too. Comparing the drafts from December 2014 and February 2015... Read More

A second chance for the SI?

Looking back at MiFID I, the Systematic Internaliser (SI) didn’t really take off, resulting in a meagre 1-2% market share in the FTSE 100 today. Many EU countries had different models to execute or internalise order flow, leaving the SI model on the shelf like a dented can of beans. Under MiFID II, Brussels will take a stricter approach by introducing quantitative SI thresholds... Read More

All together now…

A common approach will be key to minimising the fallout of MiFID II implementation, particularly around the extra data required for record keeping and transaction reporting and for algo identification. I’m hopeful that the ‘final’ Technical Standards due next month will have at least dropped requirements to include static data. Do we really need multiple systems storing... Read More

Lightening the load

Technology is meant to make life easier. Be it a smart phone, TV or fridge, or even a smart water kettle, they all promise a simpler life. Whether they deliver on that is another matter entirely and the idea that more technology always equals better is debatable, particularly considering that my new bathroom scales tweet my weight every time I step on them. Like the ongoing trend... Read More

Best ex transparency moves to the next level

The draft technical standards for MiFID II require exchanges to publish quarterly execution quality reports (RTS 6). Sell-side firms are expected to digest these and update their best execution policies accordingly. Additionally, sell-sides must publish their own execution quality reports annually (RTS 7), which obviously should be digested by the buy-side. While sceptics might... Read More

Do you invest or do you execute?

Under MiFID II, both buy-side and sell-side firms are required to record and to report on, separately, the algorithms used in making both the investment decision and the execution decision. In most agency workflows that should be straightforward enough; the buy-side makes and reports the investment decision, and the sell-side is responsible for the execution decision. But how does... Read More

Ranks of cross-border issues swell

Payment for research and unbundling has been on the European regulatory agenda for some time. It has now escalated to a cross-border issue after concerns were raised with the US SEC by a senior US politician worried about the impact on US growth industries. The recent past gives us plenty of examples of cross-border issues from both sides of the Atlantic – the US person under... Read More

Fitting RFQs under MiFID II

With the extension of the MiFID II scope into non-equity asset classes and the tightening of transparency rules, firms relying on requests for quotes (RFQs) have to figure out how this fits under the new regime. Under MiFID I the regulator defined the market models that a trading venue can operate. With MiFID II this list has grown and now includes RFQs. Whether this venue-sponsored... Read More

MiFID II data disaggregation – be careful what you wish for!

Under MiFID II pre- and post-trade data is required to be made available in an unbundled fashion – ultimately the regulator is aiming to drive down data costs. So where trading venues sell their pre- and post-trade data in the same ‘package’ they will be required to also make it available separately at a reasonable cost. Setting aside the cost discussion, the whole... Read More

MiFID II deadlines under further pressure

The European Commission (EC) and ESMA have agreed on an improved process to draft the Level 2 texts for MiFID II. On the back of those discussions, ESMA asked for a 3-month extension on their own deadline to submit draft technical standards and the EC granted it. While the next Level 2 drafts will now not be published until September 2015, the benefit is that further changes are... Read More

MiFID II set to cast its net worldwide

The current MiFID II draft suggests that trading venues have to fulfil the transaction reporting for non-EEA exchange members. While it is understandable that regulators want to ensure complete records of all trading activity within Europe, the operational burden could be far-reaching. Currently, exchanges rely largely on trading interfaces to collect information from their members,... Read More

Flagging on the road to transparency

With its aim of increasing transparency around execution quality, under the current draft technical standards MiFID II will require investment firms to provide an annual execution quality report that states, for the top five execution venues, the share of passive and aggressive orders executed by the broker. In many cases the exchange provides a passive/aggressive flag on the trade... Read More

ESMA stops short of a no-action letter

Having taken several years to get through the review of MiFID, it was interesting to hear from ESMA chair Steven Maijoor last week that there is an appetite to “explore the mechanisms to address regulatory adjustments in a flexible and agile manner”. Neither national authorities nor ESMA have any tool like the ‘no-action letter’ employed in the US. Given that the rules... Read More

Left in the dark

Currently, it doesn’t really matter whether dark trades are executed under the reference price waiver (RP), large in scale waiver (LIS) or a negotiated trade waiver (NT). However, under MiFID II, the waiver flavour will make a significant difference. Whilst RP and parts of NT will become subject to the clunky double volume cap, LIS will not, so we may expect to see an increase... Read More

Change is the only constant

The unbundling of payment for research is a top concern for the industry. There seems to be general acceptance that, one way or another, Europe is set on the soft dollar research market becoming a hard dollar one by January 2017. Despite calls for more clarity and the recent publication of the FCA discussion paper on the regime, opinion remains divided as to how the use of CSAs... Read More

Holding a steady course

Having spent the last three months buried under a deluge of MiFID II consultation pages, the real world looked quite different when I came up for air recently. Since ESMA published the consultation back in December, Greece has elected a new prime minister, Star Trek has sadly lost the original Mr Spock, Madonna fell off a stage and a whole new season of House of Cards is available... Read More

On a quest for answers in Paris

Travelling to Paris today for tomorrow’s open hearing on MiFID II, the two issues I’ll be mulling over on the Eurostar will be record keeping for trading venues and transaction reporting. Both could potentially trigger significant changes in front and middle office workflows for many trading firms. At the core of my concerns lies the requirement for trading venues to... Read More

One step forward, one step back

Market making, at its core, is a simple exchange where the market maker gives immediate liquidity and takes the bid/ask spread in return. This is set to become much more complicated in MiFID II as ESMA is mandated to introduce market making obligations. Under ESMA’s latest draft investment firms using algorithmic trading for market making for at least 30% of the available trading... Read More

Return of the concentration rule

A long time ago in a galaxy far, far away… It is a period of calm, with primary exchanges enjoying relatively little competition thanks to concentration rules enforced in many EU countries requiring all equity business to be conducted on exchange. The arrival of a new disruptor, in the form of MiFID I, is about to turn their lives upside down forever. The blanket ban on concentration... Read More

No time for sentimentality

Whether it’s Windows 8, OS X 10.10 or Android 5, modern life beats to the drum of big software releases. Since any new EU regulation includes an automatic review clause, financial markets legislation is already following a similar pattern. With the ink barely dry on ESMA’s latest technical advice and consultation for MiFID II, it’s not a question of if we’ll... Read More

Slave to a label?

ESMA has just published a report on high-frequency trading (HFT) activity in EU equity markets. It’s good to see the regulator producing an empirical study on such a hotly-debated and emotive topic. Taking a sample of European stocks, and applying two possible definitions of HFT, ESMA estimates that between 24% and 43% of value traded is done by HFT. This sounds like a nice... Read More

Systematic Internaliser on a wire

MiFID II imposes simple categories on a complex trading landscape, such as on- and off-exchange, or multi-lateral vs. bi-lateral. Obviously having some rules helps unravel complexity, but too many kills innovation. Walking this tightrope is not easy. Internalisation comes in two flavours. Either you have an order from a customer, agree a fixed price and then try to unload the position... Read More

Synchronising regulation

US securities industry regulator FINRA recently implemented new time-stamping rules, a topic also on ESMA’s MiFID II task list. FINRA requires US firms to express time in milliseconds when reporting trades to the FINRA facilities and order events to OATS, while ESMA’s proposal wants HFT firms to timestamp records to the nanosecond. That’s a whopping one million... Read More

Stuck between a rock and a hard place

First proposed way back in 2011, work has been ongoing to narrow down the details of a common financial transaction tax (FTT) to be introduced across Europe. Back in May this year, all but one of the 11 member states keen to push ahead had agreed that by the end of 2014 it should all be worked out and the new tax phased in by the end of 2015. But according to the EU’s recent... Read More

Turning down the heat on dealing commission

As the FT reported earlier this week, ESMA is set to step back from imposing a much contested overhaul of dealing commission. The scrutiny of commissions has been a major concern for the buy-side, in particular ESMA’s proposals to classify all but the most generally available investment research as a non-monetary benefit. This effectively implies the ‘unbundling’... Read More

Refocusing on auctions

BATS Chi-X Europe recently announced plans to introduce opening and closing auctions for ETFs, while the LSE plans to introduce an intraday auction for all SETS equities. Although these moves differ in instrument scope, they seem to have a common aim. The buy-side has long complained about the increasing difficulties of executing large block trades. With the new double volume caps... Read More

Algorithmes de type franḉais

Just as we’re all getting used to the idea of having to flag algos on an EU-wide basis under MiFID II by 2017, the French regulator recently published further guidance under the French banking bill that came into force in July last year. Amongst other things the French bill targets algorithmic trading/HFT and this recent notice calls for French entities to notify the regulator... Read More

Whatever happened to the surveillance beast?

When Level 1 of the Market Abuse Directive (MAD II) was discussed two years ago there was talk of ESMA potentially establishing a massive centralised database for cross-market monitoring, aka the surveillance beast. Interestingly, this idea didn’t make it into the final MAR text. Instead it calls on each regulator to have in place the necessary tools for effective cross-market... Read More

What I did not do

When I got into work this morning, I decided not to return a missed call, not to review a document, not to read a report, not to ask some colleagues for advice, not to fill in my timesheet for last month, not to think about further job training and, most importantly, not to join an internal weekly meeting which was covering a topic not relevant to me. Instead I decided to write... Read More

El mañana is here

Last week I was in the beautiful city of Madrid, where besides analysing the impact of upcoming MiFID II regulation, I’ve been catching up on the Spanish Market Reforms. The upcoming changes, aka La Reforma, promise to align the Spanish market with European peers and improve competitiveness. Spain’s clearing, settlement and registry system overhaul is being tackled in 2 phases,... Read More

True intentions

With the advances made in automated trading in recent years, regulators are having to work pretty hard to catch up with the markets. ESMA currently has two documents out for consultation on the Market Abuse Regulation (MAR) and has announced a public hearing on October 8th. In parallel, last week saw the publication of the CME’s Rule 575 on disruptive trading. The implications... Read More

Wanted: Home for OTC trading

With MiFID II’s stated aim to push OTC trading (where appropriate) onto regulated platforms European market structure is undergoing considerable upheaval. As the first round of Level 2 consultation has just finished it’s now time to define what OTC trading is appropriate and where it can be executed. While double volume caps somewhat restrict the use of transparency... Read More

Pre-emptive compliance

MiFID II brings with it some significant changes to the Systematic Internaliser (SI) regime. Most importantly, ESMA will introduce quantitative thresholds that determine when a firm is obliged to obtain an SI licence. Given that these thresholds are based on average values across the previous quarter, it all looks pretty sensible and most likely to impact only the larger firms.... Read More

Data jigsaw

Under the European Short Selling Regulation (SSR) uncovered short sales are banned and investment firms are required to track their net short positions and report them to relevant authorities/the public if they breach certain thresholds. Implementing this is already quite a tall order, but things could potentially become even more onerous in light of the requirement to flag short... Read More

Please lock the door behind you

Under MiFID II European regulators introduce new rules around algorithmic trading. Whether it’s algo IDs, enhanced audit trails or business clock synchronisation, none of these items would have been on the agenda if it were not for the rapid innovation in information technology over the past decade. Now ESMA is extending its reach into cyberspace, discussing issues such as cyber... Read More

Hang on a second!

MiFID II introduces the requirement to synchronise the business clocks of trading venues and their customers, standardising the recorded time on post-trade data, transaction reporting and, most importantly, order event auditing. Regulators argue that in the event of unusual market activity they will be able to pinpoint the exact moment things turned sour. A noble cause then, but... Read More

Tour de Force

The current MiFID II consultation is infamously complex, covering 800 pages and 800 questions to be answered in 8 weeks. If that in itself is not enough of a challenge, ESMA invited all market participants to Paris this week for a two-day Tour de Force, aka public hearing. Be it equity, non-equity, pre- or post-trade transparency, SIs, OTFs, trade reporting, third country regimes,... Read More

Higher hurdles for smaller firms?

Direct market access (DMA) forms a significant part of the market given the regulatory hoops and high fixed costs that a full exchange membership implies. While today large trading firms may let their existing memberships to smaller trading firms, similar to a company sub-letting spare office space, the current MiFID II discussion paper suggests that the well-established DMA model... Read More

Oh, for some goal-line technology!

With the new technology in place for the World Cup in Brazil, long and unsettled disputes about whether the ball was in or out are a thing of the past. Discussing the scope of MiFID II with some market participants, I really wish we had an equivalent technology in financial markets. MiFID II states that certain firms dealing on their own account are exempt from MiFID II, while... Read More

History doesn’t repeat itself, but it does rhyme

While I’m not suggesting that history is repeating itself, there are certainly some interesting similarities between MiFID I and II. With its focus firmly on equity markets MiFID I saw a number of new ventures (Chi-X, BATS, Turquoise, Quote MTF, NYSE Arca Europe and others) line up to capture a share of the European markets. With MiFID II now encompassing derivatives markets... Read More

EU FTT, next attempt

At a meeting of EU finance ministers yesterday the discussion turned to the introduction of the financial transaction tax (FTT) under the enhanced co-operation procedure. While still lacking even the most basic facts, a revised implementation timeline is emerging along the lines of a gradual introduction of the tax, with a first phase in place by 1st January 2016 and details thrashed... Read More

Before you head for the beach…

As the i’s are dotted and the t’s crossed in the MiFID II Level 1 text ahead of its June publication in the EU’s Official Journal, ESMA is already gearing up for Level 2. In order to produce all the required documents ESMA is expected to run two consultations, one for the advice on the delegated acts – for which MiFID II’s entry into force triggers a six... Read More

Any port in a storm?

With the European Parliament’s formal adoption of MiFID II in yesterday’s plenary session, the next fundamental industry overhaul is on the horizon. Away from all the noise around HFT, I’ve been looking at the new trading obligation for investment firms that requires them to undertake all trades in shares on a regulated market or MTF, or as a systematic internaliser... Read More

Algo identifiers galore

With the German algo ID mandatory from 1st April, I was prompted to scan the latest MiFID II texts in this regard. Member states must require exchanges to be able to identify the different algorithms used for generating orders (Art. 51.6) which, on a high level, sounds just like the German HFT Act. To make things even more complex, MiFIR requires investment firms to identify in... Read More

What role for OTFs?

Last week the CFTC published another no-action letter with respect to trading swaps on a European MTF. At the heart of the discussion is the question of whether European MTFs can be considered as equivalent to US SEFs. Given that a number of banks within the scope of Dodd-Frank also need to trade swaps within Europe, this is an important issue. In Europe, the discussion around swaps... Read More

A consolidation of data?

So what does MiFID II finally say about the consolidated tape? If you remember the story so far, a number of Consolidated Tape Providers, or CTPs – each authorised to operate the data reporting services – are supposed to compete to provide said tape. And if you ever wondered what the collective noun for a group of CTPs is, it appears to be ‘an authorisation’.... Read More

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