MiFID II Response Depends On Organizing Data, Sticking To Exchanges

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Transparency of financial market activity will be key to achieving compliance with MiFID II best execution provisions, states independent industry consultant Chris Pickles, who will be on a panel discussing data management under the European Union directive, at the Intelligent Trading Summit (ITS) to be hosted by A-Team Group in London on 2nd February.

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“MiFID II is a fairly heavyweight tuning exercise,” says Pickles. “The regulators are gradually working their way through the learning process of what transparency is about.”

With the UK’s exit from the European Union proceeding, the UK will need to create regulations that are consistent with MiFID II as a directive — for UK markets to continue to transact cross-border trading with EU member countries. If Brexit had not proceeded, MiFID II’s related MiFIR regulation would have automatically applied to UK market activity.

“EU regulations are founded on an underlying belief that has built up over the last dozen years that trading must be done on an exchange for it to be transparent,” says Pickles, alluding to the approach that UK regulators will need to take to writing regulations consistent with MiFID II.

The European Securities and Markets Authority (ESMA) construction of its Financial Instruments Reference Data System (FIRDS) will inevitably generate more data output, as Pickles says. The ITS session is set to cover the topic of “Keeping up with the data management deluge.”

“ESMA will have to carry a super set of all instruments because they have to regulate every single financial institution across the EU,” says Pickles. “They have to be the superset of all the banks, all the exchanges and all the OTC trading venues. There’s a massive reference database there.”

Generating more data, and then getting an organized reference database of that data, can lead to “the degree of transparency that’s needed across [European] markets,” he adds. This will also set up the data operations and compliance climate for an eventual “MiFID III” update of the EU directive, according to Pickles.