As the MiFID review process rumbles on ahead of a potential sequel, more and more attention is being directed towards the data quality issues underlying the barriers to post-trade market transparency. On this note, the City of London’s recently published report into the impacts of MiFID (handily titled “Understanding the Impacts of MiFID”) indicates that the majority of the European firms participating in the study believe poor data quality, high costs of pricing data and a reliance on vendors are the main barriers to post-trade transparency.
The report, which is based on responses to a survey by a sample of brokers, buy side firms and trading venues from across European financial centres including Amsterdam, Dublin, Brussels, Copenhagen, Frankfurt, Luxembourg, Madrid, Paris, Stockholm and Vienna, highlights the main barriers to establishing consolidated price information. This consolidated pricing issue was considered to be the most important to achieving best price execution as required under MiFID.
As stated by the report, the main barriers comprise: “the reliance on commercial data vendors to provide aggregate data solutions; the cost of acquiring post-trade information; and poor data quality, especially for over the- counter trades.” The information required by MiFID post-trade transparency includes data on trade time stamps, prices, quantities and execution venues, to be provided as close to real-time as possible.
Buy side firms in particular noted that data quality is perceived to be low due to “reporting delays and inaccuracies such as double counting, which creates difficulties in achieving best price execution.”
The report notes that these challenges cited by European stakeholders are similar to those provided by UK stakeholders, ditto with regards to the views of brokers versus those of the buy side. Ergo this indicates that the profile of data quality has been raised across the region and across market participants.
In order to tackle these main challenges, respondents noted that clarity around data standards and more precise information requirements are needed. To this end, the report states: “data quality could be improved by clarifying precisely what information to provide and when for best execution, which may include providing distinct best execution standards for different categories of business.”
Moreover, respondents said that poor data quality and high data costs could be addressed by having trading venues compete directly with vendors in the data provision space. Some brokers and buy side firms also suggested that an industry, not for profit organisation should be established for the purposes of consolidating price information and distributing it to market participants. This is similar to the idea of the consolidated tape for market data, which has also been a key discussion point across the industry. Infrastructure is proving to be a common theme in the MiFID discussions and beyond.
The trading venues themselves indicated that price consolidation would require a high degree of coordination across their number and standardisation was the first port of call for this process. On this subject, the report also sounds a word of caution: “In considering a private sector solution specifically, some market participants may not be able to afford the costs, given, for instance, the present high cost of accessing OTC data.”
This report will likely feed into the Financial Services Authority’s (FSA) examination of the impact of MiFID thus far. The UK regulator has paid particular attention to the data quality issue over the last couple of years and Dario Crispini, manager of the Transaction Reporting Unit of the FSA, has spoken about the subject on numerous occasions. At a MiFID Forum event towards the end of last year, he also indicated that the regulator is contemplating mandating that firms appoint a data governance officer and introduce a data assurance programme to ensure that standards of data quality are being maintained.
In terms of respondents, the report includes responses from seven trading venues, 96 brokers and 104 buy side firms.