Eye on the Markets Summer 2016: MIFID II Transaction Reporting: There's No Time For Complacency

An extra 12 months would ordinarily seem quite generous and more than sufficient time to implement regulatory changes but with the complexities and breadth of changes attributed to MiFID II, there is no time for complacency. Not least, as the legislation relating to post-trade transaction reporting is contained within the Regulation as opposed to a Directive. This means that EU member states must implement the rules as they are written and there is no scope for interpretation at national level. Unlike with MiFID I, this has been purposely orchestrated to ensure that there will be common and consistent standards of reporting applied across all EU countries.

The post-trade transaction reporting regime is being expanded significantly and the technical and operational challenges should not be underestimated. The number of fields associated with a transaction report increases from 24 under MiFID I to 65 fields under MiFID II. 48 out of the 65 fields are new and the remaining ones still require significant changes.

One of the main headaches for firms relates to reference data due to the sheer volumes and assortment of data. It includes product, instrument, trading venue, counterparty and client data. It requires firms to establish and integrate feeds from internal and external data sources in order to consume, for example, employee records, LEI, ISIN, CFI, and MIC related data required in transaction reports.

• The key operational aspects to consider in this regard are:
• Reviewing of the referential data gap to meet reporting requirements
• Mapping the expanded product set and transaction types to the reporting framework
• Reviewing your client on-boarding process to capture information to meet the reporting requirements

Continuing to report under MiFID I whilst developing and running parallel test environments under MiFID II - all of which will be very costly to firms and have a significant drain on resources.

According to data service provider Avox, there are approximately 1.7 million active entities worldwide and all will require a Legal Entity Identifier code to trade with an investment firm under MiFID II. Approximately 400,000 LEI codes have been issued to date and therefore, over three quarters of entities do not yet have LEI codes. This underscores the challenge the financial services industry faces to be ready for the MiFID II implementation date.

Firms that haven’t yet fully considered MiFID II are strongly encouraged to review their existing architecture in earnest in order to develop robust operational processes, systems and controls in time for January 2018.