MiFID II – No Time To Wait

December 19, 2016, Category: Plan

It would be all too easy to forget that the rules proposed by the MiFID II regulations need to be implemented by January 2018 amongst all the delays, media commentary and conferences. Originally planned to be in place by January 2017, it was delayed by a year due to a lack of clarity and an underestimation of the time needed to implement the necessary changes, yet there is still confusion regarding the implementation of several requirements and a lack of strategy to tackle MiFID II by a large proportion of market participants. Part of the reason for this is the inability to determine what would be considered as ‘good enough’ by the regulators, another part can be attributed to the lack of market structures necessary for compliance. However, the deadline is soon approaching and the market will have to comply. With just over one year to go before the final deadline, what is the current state of MiFID II readiness?

Research goes to suggest that organisations are at varying stages in their readiness. Some have started implementation of specific solutions, others have reserved budgets and are looking for ideas from peer groups before starting implementation, whilst a section of the market are still far behind with their preparations. Across a range of segments, market operators have typically been the first movers – probably due to the highly regulated nature of their business or because some are launching MiFID II compliance solutions such as reporting facilities. Firms with global operations seem to be considering solutions that can be leveraged across different regulatory environments such as Europe and the U.S.

On the other hand, there are some groups who believe that the solutions needed for compliance will be implemented outside their business or be provided to them. These firms, who are often focused on a specific asset class or a specific geography usually rely on their brokers or partners to provide technology for them. However, with MiFID II, the responsibility for compliance is with the firm, rather than the supplier. All organisations now have a responsibility to ensure that they are acting in compliance – it is no longer possible to rely on a supplier to make sure that the systems in use are compliant. While technology solutions can, of course, come from brokers and vendors, there needs to be engagement from the end-user and careful consideration of the implications as responsibility will remain in-house.

While many are understandably focused on areas of the regulation that are of most importance to their specific business area, the need to comply with all relevant aspects of the regulation is fast becoming a far more pressing matter. For example, investment banks must still look at best execution rules and the buy side needs to focus on how to pay for research.

The majority of evidence points to a temptation to wait and see what the rest of the market do first, and also what ESMA regards as being compliant. Consultations are being released regularly and this may lend some justification to a ‘wait and see’ strategy. However, with little time left to make the required changes, there is a real danger that it will be left too late.

If only one thing is certain, it’s that the January 2018 deadline is close. If the current anecdotal evidence is even partially correct, many organisations have a long way to go to be compliant. The solutions that are needed are not quick fixes but will impact many aspects of the trading workflows across the industry and across a wide set of asset classes. If fines – or worse – are to be avoided then participants need to move the implementation stage as soon as possible as to remain waiting is not a viable option anymore.

RTS-25

As part of MiFID II regulations, RTS-25 requires firms and venues to timestamp events accurately relative to Coordinated Universal Time (UTC) and to an appropriate level of granularity depending on where a trade is executed and the gateway-to-gateway latency of the venue. The accuracy and quality of the synchronisation network will be key to ensuring compliance with this part of the regulations.

Our Synchronisation planning tool, Sync Architect allows users to create a pure software simulation of sync element functionality and network topology, allowing to determine optimal synchronisation network configurations before implementation, increasing design accuracy and efficiency. Find out how it can help you with RTS-25 here…

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