Following the feedback received during the recent consultation period, the Committee of European Securities Regulators (CESR) has finally produced its technical advice for the European Commission regarding the establishment of a sequel to MiFID. As well as the expected proposals for a European consolidated tape, the papers also include a number of recommendations related to aspects of reference data management, including new standards for data quality for the post-trade transparency regime and the extension of these transparency obligations to “equity-like” instruments on regulated markets.
The non-equity markets paper (second out of the papers in the technical advice package) proposes that the Commission should extend the MiFID regime to corporate bonds and the more standardised structured products including asset backed securities (ABSs), collateralised debt obligations (CDOs) and credit default swaps (CDSs). The regulatory paper states that this trade information, which includes basic reference data such as standardised instrument identifiers, be made available on a “non-discriminatory commercial basis at a reasonable cost and in a manner which is easily accessible by all investors”.
CESR indicates that despite the wariness of the market, as demonstrated by the feedback it has received, it will push on with its recommendation to the Commission to publish a standardised format of identification for CDSs. The data that must be provided in this manner comprises: a standardised format of identification, issuer name, price at which the transaction was concluded, volume of the executed trade, date and time when the trade was concluded, currency, maturity and rating. In addition, for CDSs firms must also provide reference entity data.
CESR recommends a phased approach in which the new data requirements are gradually applied to the larger and more standardised products first. The regulator has also recommended that a review be conducted a year after the introduction of these new requirements to assess the full impact of the changes and alter the regime accordingly.
As for the reference data impacts of this particular aspect of MiFID, firms’ data supply chain will certainly be altered by these new requirements and some degree of investment will be necessary in order to consolidate and report the required data publicly.
The technical advice on transparency draws together the main themes from the 76 responses received to CESR’s consultation on equity markets, which was published in April this year. Although the focus of the transparency paper (the first out of all the papers) is largely on issues such as refining the definitions and boundaries for systematic internalisers and the consolidation of market data, the regulator has, as a by-product, introduced new standards that must filter down to the world of reference data. By requiring a certain level of data quality throughout the post-trade transparency reporting regime, the regulator will mandate a certain level of accuracy and standardisation for instrument and entity data.
Moreover, this is made much more challenging by the extension of the transparency regime beyond equities and into the world of equity-like instruments such as exchange traded funds (ETFs), certificates and depository receipts. This is further clarified by advice stemming from CESR’s other consultation papers and industry responses regarding transaction reporting and non-equity markets (as noted above).
The transparency advice recommends that the Commission: “embed standards aimed at improving clarity, comparability and reliability of post-trade transparency that would cover matters such as condition codes for trade types and process for correcting erroneous post-trade reports”. The paper indicates that the new regulatory body, which will essentially be the next incarnation of CESR, the European Securities and Markets Authority (ESMA) should 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 focus is also on getting trade data published in as near to real-time as possible and this, again, will have an impact on underlying reference data architectures. The requirement for a reduction from three minutes down to one minute for the production of trade reports within the downstream reporting systems will require faster provision of the underlying reference data, as well as the successful performance of the relevant data checks.
The operator of a consolidated tape would also have a reference data challenge of its own, in the form of retaining the relevant trade reporting for a share for a period of up to five years after it has been traded. This would require the storage of this data in a suitable warehouse architecture in order to be able to retrieve this data on demand. Given the challenge such an operator will face in setting up a consolidated tape in the first place, this is yet another straw to potentially break the camel’s back.
The general theme from CESR with regards to data of all kinds is that it should be both “consistent” and of “high quality”. Given the intense focus on this subject from the European level, the latest incarnation of MiFID should further strengthen the case for a faster and more structured approach to both market and reference data within firms in the region. If the regulatory community threatens to mandate data quality checks, the industry will be forced to invest in this area, after all.
The most relevant paper in terms of reference data out of these new MiFID requirements is that concerning transaction reporting, which is elaborated upon in a separate story.