MiFID II introduces increased pre- and post-trade transparency obligations and expands the scope of MiFID to encompass Equity-Like and Non-Equity instruments, including Commodities, Fixed Income and FX markets. This will transform the trading landscape across the EU as more financial instruments are forced onto regulated and authorised Trading Venues or Systematic Internalisers.
MiFID II has been a challenge to Investment Firms for a long time now, but with only 200 days until the regulation comes into effect it is increasingly important that firms are finalising their trade transparency solutions and vendor arrangements.
The firms that will be successful in adapting to MiFID II are those that are being proactive in their approach by responding to the new regulatory landscape in time.
Key transparency related considerations for firms:
- Am I a Systematic Internaliser?
- Do I have to publish pre-trade quotes?
- Do I have a post trade reporting obligation?
- Do I have an APA selected for trade publication?
- Is it possible to facilitate assisted reporting on behalf of my buy-side clients' behalf?
- How can my broker facilitate Assisted Reporting on my behalf?
MiFID II Transparency Obligation:
In accordance with MiFID II, Systematic Internalisers (SIs) are Investment Firms which, on an organised, frequent, systematic and substantial basis, execute client orders against proprietary capital outside a regulated market, MTF or OTF without operating a multilateral system. Under MiFID II, firms that exceed the SI thresholds or choose to opt-in to being a Systematic Internaliser are subject to pre-trade transparency and may be obliged to provide pre-trade quotes.
Pre-trade transparency (quote) obligations are extended to Non-Equity instruments; bonds, structured finance products, emission allowances and derivatives which are traded on a trading venue. Actionable IOIs are also in scope.
Equity & Equity Like
Pre-trade transparency (quote) obligations are extended to Equity-Like instruments; depositary receipts, ETF, certificates or other similar financial instruments traded on a trading venue. Actionable IOIs are also in scope.
MiFID II introduces the requirement for Investment Firms and venues to make public trading activity. The regulators aim to create a fair marketplace in which all participants have sufficient data to make informed investment decisions. Thus, Trading Venues and Investment Firms must publish details of transactions as close to real time as technically possible:
• within 1 minute for Equity and Equity-Like
• within 15 minutes for Non-Equity (reducing to 5 minutes).
Post-trade transparency obligations are extended to Non-Equity instruments; bonds, structured finance products, emission allowances and derivatives.
Equity & Equity Like
Post-trade transparency obligations are extended to Equity-Like instruments; depositary receipts, ETF, certificates or other similar financial instruments traded on a trading venue.
How can TRADEcho help?
TRADEcho has extensive experience in providing world-class solutions to help ease the burden of regulation on firms. TRADEcho was formed through a partnership between the London Stock Exchange (LSE) and Boat Services to deliver a compliant, simplified and cost effective reporting services for MiFID II. The services combine the strengths of Boat Services and the LSE to form a team of industry, regulatory and technical experts. By combining the two existing reporting platforms and utilising the respective strengths of each firm, TRADEcho offers an unparalleled breadth and quality of service.
TRADEcho provides Investment Firms with the tools to determine if they are a Systematic Internaliser and keeps firms informed of their SI status in real time.
The SI Quoting service gives SIs the tools to publish quotes via the LSE market data service (GTP) or on the TRADEcho website and thereby meet their pre-trade transparency obligations.
Smart Report Router (SRR)
The SRR determines if and when a buy or sell-side counterparty should publish a trade and, when there is a requirement, routes that trade to an APA of choice for publication. By using the SRR, instead of connecting directly to multiple APAs, firms achieve flexibility while keeping costs down.
TRADEcho's APA, is a real time pre and post trade publication service reaching across all MiFID II asset classes. TRADEcho provides Investment Firms with a mechanism to publish trades they have executed and thereby meet their MiFIR/MiFID II pre and post-trade transparency obligations.
TRADEcho's Assisted Reporting allows firms to report trades on behalf of clients. With the Assisted Reporting service firms can support their clients choice of APA and enable real time visibility of trades published ensuring regulatory oversight.
Off-Book On-Exchange Reporting
LSEG will continue to provide post-trade reporting services for on-exchange trades to help customers manage investment mandates, counterparty risk through buy-in & default regime as appropriate.