News and Views MiFID II Special Edition 2016

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Global Trustee and Fiduciary Services News and Views | MiFID II Special Edition 2016 31
Clock synchronisation and time stamps could
be identified as connected to best execution
compliance mandates, which apply equally
to the buy side and sell side. In particular,
components such as smart-order routers
(SORs), operated by broker-dealers on behalf
of buy-side clients, are likely in scope for
microsecond-level timestamp requirements.
Many SORs are capable of generating orders
in response to either a market data change
or the receipt of an execution report in less
than a millisecond, which would qualify them
as trading systems that RTS 25 states need
their audit trails to be kept in microsecond
precision and their clocks be synchronised
to UTC on that basis. Considering ESMA’s
interpretation, that best execution considers
“likelihood of execution”, and that SORs are
typically evaluated on that basis, this will
require sell sides to capture microsecond-level
data and their clients to be able to interpret
and analyse that data.
DRSPs and bringing it all together
Data Reporting Service Providers (DRSPs) are
in a position to offer an end-to-end solution
that addresses MiFID II requirements across
financial information, transaction processing
and versatile software platforms that are
scalable. For example, IHS Markit’s particular
solution in this area includes connected
building blocks of MarkitSERV, thinkFolio,
EDM, TCA, Counterparty Manager and Best
Execution allow for turnkey integration and
workflow across the new information chain.
The ability to enhance and expand transaction
data, trade and operational data exceptions,
reconciliation and allow for data retention,
retrieval and encryption will be useful as firms
refine their trading workflow in the context of
market reforms. As part of their overall MiFID II
implementation planning, each individual firm
will need to undertake analysis of their own
capabilities and determine the best solutions
and partnerships for them.
Imminent and future regulation
With DRSPs’ capabilities and architecture, the
compliance burden becomes an opportunity to
integrate a firm’s data infrastructure. Further
compliance with the Basel Committee’s
Fundamental Review of Trading Book (FRTB)
rules (related to quantitative and qualitative
market risk disclosures for banks) and other
regional regulations becomes a question of
business configuration rather than massive
technology build (or in some cases rebuild).
In fact, FRTB required disclosures are included
within MiFID II required fields, which means
that when set up correctly on client premises,
a trade will be captured once, but normalised,
enriched, reported and published, internally
or externally, as many times as needed. This
will also help to create a “plug-and-play”
model for cross-border compliance across
different regulatory regimes, with different
transparency and reporting standards.
This type of functionality will be a crucial
advantage for global buy-side firms as they
seek to retain the maximum amount of
flexibility for their execution decisions.
Article written by IHS Markit.4
1 See
ELEX:32014L0065&from=EN, last accessed on 2 August 2016.
2 See
ELEX:32014R0600&from=EN, last accessed on 2 August 2016.
3 From
esma-consults-transaction-reporting-reference-data-record-
keeping-and-clock, last accessed on 2 August 2016.
4 IHS Markit is a world leader in critical information, analytics
and solutions for the major industries and markets that
drive economies worldwide.