This feels nothing like the time before MiFID I went live, but in essence it is a similar upgrade to instrument reference data as it was then. In the period before EMIR went live, Euromoney TRADEDATA collaborated with the then FSA to create a fit-for-purpose AII (Alternative Instrument Identifier) data set for certain EU markets; a data set that has stood the test of time in constant use by investment banks, service intermediaries, Approved Reporting Mechanisms and other regulatory reporting points from there, to and including the UK regulator itself, being the Competent Authority.
Since that time, there have been many different drivers which have forced innovation in new data content and engineered customised data feeds to improve processing efficiencies across multiple trading platforms from the front to the back office. Notably this includes the CFI code, for which we created a reliable global source to meet the need for use in regulatory transaction reporting alongside the AII. Our CFI data, which has been used successfully for many years by the world’s top ten banks and many market participants, as deployed in our powerful community data model, covers all tradable futures and options worldwide and has recently been upgraded to the ISO: 2015 version required by the new regulations.
Compared to European regulatory reform covering taxation, capital, liquidity and bank structure, the market structure changes related to Euromoney TRADEDATA’s world of instrument reference data for exchange listed derivatives and OTC clearing venues, appear mostly prescriptive and defined, but not without interpretive challenges, notably ToTV (traded on a trading venue) and index constituent eligibility. Firms must now focus on product and symbology domain knowledge to provide the correct MiFID II data required for this single asset class with the symbology hooks needed for easy but essential integration with multi-asset solutions for consolidated transaction reporting and risk management.
The drive toward multi-asset class consolidation has, and will continue, to change physical and technical operations, workflows and both proprietary and vendor software solutions, as regulations, not just in Europe but worldwide, are making this as mandatory for an effective trading operation as the new laws are themselves. The European and rest of world regulations have forced a root and branch challenge to the trading world as we know it. Top management, top down frameworks for change have had to marry up to bottom up, practitioner realities, creating both vertical and horizontal challenges, so it is not surprising that vast budgets have been toted across the board and not just in Euromoney TRADEDATA’s core market segment. We have all heard of strategic re-locations both actual and theoretical, which provide an albeit, scant insight into top tier firms’ master plans, having absorbed tabled regulations and having speculated on related outcomes, not yet articulated. One has to hope, or believe, that the towering financial and intellectual acumen of these firms is providing clear leadership in the shifting sands of world market trading.
The industry has already passed some key regulatory milestones and is now counting down to the next one, EMIR RTS 2.0 go live in November and on its heels, MIFID II, the big one, in Jan 2018. It has been fascinating to watch the conference and media circuits’ polls, surveys and other means to establish the industry’s readiness. In some ways, it reminds me of how certain national security organisations may operate, i.e. on a need to know basis, designed to both protect an organisation from information breaches but also to conceal the totality of its strategy and definitely to blur where it is spending and committing capital to bolster the opportunity to realise a competitive advantage. It is a very high stakes game with latent penalties for failure, both direct and indirect, in trading performance and non-compliance respectively. I’m not a chess player, but I would envisage the complexity to be that of 3D chess and given all the date targets new regulation has set, we should add time as the fourth dimension to the model to most accurately portray the scale of challenge the industry faces.
So, firms are sending out envoys to key market touch points of expert working groups, trading associations and industry policy bodies, to both feed and glean “what does the group think?” and “what does the team say?” to establish what is important to achieve and by when. What this group thinks may also extend to an existential risk of facing-off to the regulatory authorities, manifesting in firms not meeting implementation deadlines but having enough evidence to demonstrate endeavours of an appropriate nature, as a re-buff to highlight the gap between market experience and regulatory theory in a “we told you so” stand-off. The almost regular drum beat of eye-watering fines by regulators would surely provide enough motivation to keeps firms on track and yoked up to the regulation train? I guess we’ll only find out sometime, but maybe not early, in 2018 or maybe not until years later, when cold trade case investigations may reveal unprecedented levels of unknowing non-compliance. But in the meantime, we should not only monitor trading firms’ annual reports for expected capital provisions for day to day trading, but also the capital provisions made for defending or paying regulatory fines in the future, as an indicator of a firm’s confidence in its compliance investments. Maybe, we should also monitor receivables of insurance companies who provide cover for regulatory compliance failings too…
It’s a bit early to extend Seasons Greetings, but maybe not to make a note that it’s never too early to start planning your New Year’s resolutions.