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Markets and Securities Services | Issue 46
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The catalyst for this change is both the
requirements of the Markets in Financial
Instruments Directive (MiFID II)
1
and
Regulation (MiFIR)
2
and the other security-
specific regulations coming into force in
the next two years. The wider implications,
however, are much more far-reaching, as
firms consider other regional and global
reforms that will revamp the reporting and
transparency landscape.
Analysis of the technical rules reveals that
the scope and depth of new requirements
will require data sets that are too large and
complex for existing in-house technology to
manage effectively. The ability to evaluate
rapid changes in these data sets is a key
requirement for efficient information
management in the new environment.
This makes it a strategic priority for firms
to develop a centralised data platform to
manage the integration of extensive data sets
with different specialised trading systems and
diverse reference data.
Information management in a new age
The January 2018 implementation of
sweeping transparency, trade reporting and
best-execution requirements under MiFID II
will require wholesale end-to-end changes
to the way firms process and manage trade
data. The publication of regulatory technical
standards by the European Securities and
Markets Association (ESMA) and the European
Commission (EC) have given the roadmap
for compliance. New standards covering
trade execution, investor protection, trade
reporting, settlement, best execution, and
systems governance and controls will have an
unprecedented impact on all financial services
stakeholders across asset classes.
In some instances, such as post-trade
reporting, the increase in the range of
information required will necessitate an
overhaul of data systems and the automation
of the reporting and settlement process. In
traditionally over-the-counter (OTC) markets,
that will mean electronic adoption in the
trade negotiation process — a shift from the
predominantly manual workflow to date.
Complying with MiFID II
Many financial services firms previously
complied with regulation by simply reworking
existing technology and information
repositories, placing more strain on often-
overloaded IT departments. However, the scope
and depth of MiFID II requirements necessitate
data sets that maybe too large and complex
for these systems to handle. In addition,
market information can change too quickly
to evaluate at the trade-by-trade execution
level. Financial firms will need to capture,
combine, analyse, store and disseminate
information in ways not previously
contemplated. This presents a major
challenge for existing systems at many firms.
A reason for this is the need to centralise
data sets from a large number of different
subsystems into a normalised and coherent
data framework that supports validation,
enrichment, analysis and distribution.
Accordingly, for most firms, implementing
MiFID II requires new information architecture,
software processing, analytics calculation
and data-distribution capabilities. There are
several key areas where this should translate
into a more effective decision-making and
performance-management benchmark that
makes firms more efficient.
MiFID II AND THE INFORMATION
MANAGEMENT CHALLENGE
Regulatory reform will have an unprecedented impact on how financial
services stakeholders manage data and information across asset classes.
Updated approaches to collecting, analysing, structuring and evaluating data
will be required for compliance with trade execution, investor protection,
reporting and settlement standards.