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CESR on the Case for Post-Trade Data Quality, Pushes Ahead with Complexity Classification Changes

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In its latest feedback paper as part of the ongoing MiFID review, the Committee of European Securities Regulators (CESR) has confirmed post-trade data quality remains high on its agenda and despite negative feedback from some corners of the market, it will be pushing ahead with classification changes to the definition of certain complex products under the directive. The regulator is keen to clarify which products it considers to fall into the complex category in the next iteration of MiFID and this will duly impact the reference data tags of the instruments in question.

The regulator indicates in its investor protection and intermediaries feedback paper that it has taken some of the industry’s feedback into account but will be pushing ahead with definition changes for the sake of clarity, regardless of these concerns. “CESR does not believe that issue of complex/non-complex products can be ignored. The current language in the directive gives rise to uncertainty and does not necessarily achieve what it was intended to do as effectively as it might,” states the paper.

These amendments essentially will embed certain instrument identification standards into firms’ systems in order to track which items fall into the complex or non-complex categories. It is a much more prescriptive approach to the processing of this data and will mean a requirement for new data checking processes.

For example, the CESR paper notes: “CESR has sought to work within the existing broad framework of Article 19(6) of MiFID in providing its technical advice to the Commission. Its advice therefore attempts to refine rather than completely remake every aspect of the existing text. However, CESR has proposed refinements to MiFID’s treatment of bonds and money market instruments in its Technical Advice to the Commission.”

The regulator is therefore now working to rectify some of the “weaknesses” identified in the current text of the directive with regards to providing guidance on classification.

In the same paper, CESR also reiterates the importance of post-trade data quality to the future of the regulatory regime in Europe. “Several respondents noted that CESR should undertake further work on post-trade data quality and transparency, including harmonisation of standards to improve comparability and the publication of data free of charge. One respondent noted that the introduction of discrete post-trade services would make post-trade data more affordable and would facilitate the aggregation of post-trade consolidation services by existing commercial vendors. Another respondent considered that improvements to post-trade transparency should indeed be seen as a pre-condition for a fully informed discussion of the questions raised by CESR. Improving the quality of post-trade data is an issue on which CESR has provided technical advice to the European Commission,” says the paper.

To this end, it has been proposed that the new regulatory body, which will essentially be the next incarnation of CESR, the European Securities and Markets Authority (ESMA) will be granted powers under MiFID to set binding technical standards covering post-trade data quality. “This would allow for ESMA to deal with data quality issues as they arise and help to ensure that post-trade data quality can become and remain consistently high,” says CESR.

The full feedback statement is available to download here.

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