The best execution requirements of Markets in Financial Instruments Directive II (MiFID II) present several challenges including the need to manage more data, time-stamp and sequence messages, and report in line with the regulation’s compliance mandate. Financial institutions that implemented the first iteration of MiFID after it came into force in 2007 may have a head’s start on its successor, but there is still much to do and the time extension of MiFID II compliance to January 2018 has been gratefully received by the industry.
Issues around best execution and the wider requirements of MiFID II were discussed during a recent A-Team Group webinar. The webinar – Adding Intelligence to Electronic Execution for Best Execution under MiFID II – was moderated by A-Team chief content officer Andrew Delaney and joined by Victor Lebreton, managing director at Quant Hedge; Cathy Gibson, director, head of fixed income trading, UK asset management at Deutsche Asset & Wealth Management; and James Wylie, director of technical product marketing at Corvil.
The panel members noted the rise in data and data management requirements resulting from aspects of MiFID II such as the move to make fixed income markets more liquid and transparent, and the need to store trading data for five years. In response to this, they suggested most financial institutions are taking an holistic view of compliance covering the accurate acquisition of data, extensive data storage and the ability to answer questions across the regulation’s requirements.
Considering whether to build or buy MiFID II solutions, the panel said this depends on the extent of existing systems, although elements such as time stamping and clock synchronisation are likely to be sourced from a vendor and could be implemented alongside existing trading platforms to avoid making an impact on carefully tuned systems. Similarly, collocation of trading systems with matching engines to minimise latency depends on firms’ strategies.
Perhaps one of the toughest challenges of MiFID II best execution is trading across multiple venues and achieving transparency. Panel members said this is particularly difficult in OTC markets with several matching platforms and will be a burden to large asset managers and investment managers.
While the challenges of MiFID II are significant, there is also opportunity. Wylie concluded: “If best execution is done well, what has been done can be leveraged for other elements of MiFID II. For example, the acquisition of accurate data can meet other directives in the regulation and business can run analysis across the data to drive the business forward.”
To find out more about:
- The scope of MiFID II best execution
- Best execution across multiple venues
- Time stamping and clock synchronisation
- Industry approaches to compliance
- Emerging technology solutions