The SmartStream Reference Data Utility (RDU) is collaborating with a group of Approved Publication Arrangements (APAs) to fill a reporting gap in the Markets in Financial Instruments Directive II (MiFID II) framework with a centralised Systematic Internaliser (SI) Registry that allows SIs to register financial instruments for which they are providing SI services in the registry through their APA.
This is important as industry participants must identify whether trading counterparties are SIs for the financial instruments they are trading so that they can determine which counterparty must report the trade. Last year, the European Securities and Markets Authority (ESMA) said it would not publish a list of SIs before the January 3, 2018 MiFID II compliance deadline and did not expect to publish ISIN to SI relationships before the end of 2018, causing the gap in reporting.
The SmartStream RDU initially considered setting up an SI register with Deutsche Börse, an APA, late last year, but pulled back on the basis that it would be preferable to work with a group of APAs that have contractual arrangements with SIs and are in a better position to gather data from them.
The Systematic Intenaliser Registry is a collaboration between the SmartStream RDU and APAs including Deutsche Börse, Bloomberg, NEX Regulatory Reporting, TRADEcho, Tradeweb and Trax. It has been available to all APAs and SIs since the MiFID II compliance deadline and was designed for APAs and contributing SIs to ensure the correct counterparty reports a trade. MiFID II requirements specify that if one counterparty to a trade is an SI, the SI reports, whether it is the buyer or seller. If both counterparties are SIs, the seller reports. If neither counterparty is an SI, the seller reports. To date, more than 50 SIs are on the SI Registry, with more joining every day.
The selection of the SmartStream RDU to operate the registry will make SI data more broadly available to all market participants, including traders that are not SIs. This should help trading firms meet post-trade transparency obligations and allow buy-side firms to identify upfront whether they or their selected brokers will be required to report a trade. By making broker selections based on whether they are an SI, trading firms can avoid some of MiFID II’s reporting obligations.
Peter Moss, CEO at The SmartStream RDU, says the company will act as an SI data consolidator and distributor on behalf of the APA group, with APAs collecting data from SI customers and passing it on for consolidation to the SmartStream RDU, which will then deliver a single set of SI data to APAs. He notes that the registry provides essential transparency for the market to function cost effectively and is a natural addition to the MiFID II reference data services already offered by the company.
Commenting on the registry, Andrew Munro, global head of fixed income trading at Janus Henderson Investors, says: “The SI Registry is a welcome development and addresses a major functional gap for us in post MiFID II market infrastructure – SI determination pre-trade. Provided SI data is available on fair and reasonable terms, the registry will allow investment managers to confidently, accurately and rapidly identity which firms are SIs before they trade. Armed with this information, and the venue trading option, investment managers should be able to avoid the cost of building their own in-house trade reporting capabilities while complying with MiFID II.”