Murky waters run deep

Ana Herrero-WallaceWhy are politicians so obsessed with bringing transparency to the European post-trade regime?

MiFID II is very much focused on fixing all the unintended consequences that followed the implementation of the MiFID directive in 2007. The fact that the original regulation allowed the publication of OTC trading on websites and the fragmentation of trading without the construction of a post-trade consolidated tape resulted in an opaque post-trade picture.

Any new consolidated tape should provide a single place for post-trade data on which to base execution performance. It has been a mystery for some buy-side traders as to how much volume is actually traded in a particular stock. Many believe that much of the trade reporting is double-counted, especially in the OTC space. So, on that basis, how can they analyse the veracity and performance of their transactions when they can’t even compare their trading to the market using Transaction Cost Analysis (TCA)? Post-trade data inefficiencies have hindered those buy-side firms in their ability to undertake regular monitoring of best execution.

I welcome some of the new proposals that have come out of Brussels aiming to bring post-trade transparency, starting with the creation of a consolidated tape that should be able to show the executed prices and volumes for a particular stock in a single day. Also, I agree with the introduction of the APA regime which will clean and validate post-trade data and set the standards for OTC reports. These are positive proposals that encourage better flagging of OTC post-trade executions.

If these proposals go through some of the murky waters will become clearer, enabling an investment firm to see what lies beneath and to perform verifiable TCA on what really went on while their order was being executed. Bravo!

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