The FIX Trading Community returned to Paris for the first time in two years in early October to have further discussions about the current regulatory environment in Europe. The timeliness could not have been better given the publication by ESMA, earlier in the week, of its final technical standards. The panel, consisting of senior participants from the sell side, buy side, regulators and vendors gave an excellent cross section of the thought process currently in the market place.
The panellists all agreed that there are massive challenges ahead for the market, not least of which are the perceived changes and timelines in the final publication. There will be new policies, new compliance procedures and new technology needed for the market to comply. The responsibility, as the blog title suggests, lies with everyone. An excellent example of this is the responsibility to prove Best Execution. Where does the onus lie to prove this? The buy side certainly feel an obligation, although they have concerns on providing that for every execution that they do. The business is still run by people, not machines and there is still sometimes an intangible and intuitive quality about an execution that is very difficult to measure.
Gauging Best Execution will not be a simple process and the sheer volume of data involved is daunting for the market to digest. This does beg the question, will all market players be able to obtain this data? The commercial aspect of increased regulation is coming to the forefront and vendors will be asked to provide prompt solutions. However, market utilities are becoming more popular as we have seen with Neptune and the Plato Partnership, both collaborative efforts between the buy side and sell side. There was a feeling among the panellists that we will see more of these collaborative utilities spring up in the future.
The regulators are mindful of the increased pressure on the market participants. However, they are firmly of the belief that this increased regulation is prompting companies to look in depth at their businesses. The regulators are looking for outliers, looking for trends, looking for ‘fair play’ by market participants. Although there may be some rumours of a delay in the final implementation (currently set for January 2017), the regulators remain clear about firms’ obligations. They strongly recommend that firms look towards this deadline with a view to be ready rather than looking to delay.
Whilst there is a view that the vendors are rubbing their hands in anticipation of a bumper pay-day with increased spending on solutions to meet the new regulation, there are increasing pressures for them as well. The same deadline is looming large for vendors. There will be added reliance on the data being provided by vendors. This data needs to be normalised and standardised and, most importantly, it needs to be secure. Vendors will need to comply with new regulation as well.
There was a question asked by one attendee to the regulator, “How can you be ready for something, if you don’t know what it is?” No one on the panel was hiding their concerns over what happens during the next 14 months. However, what was evidently clear from the panel discussion is that the financial community will only really be able to manage the process through collaboration and a cohesive approach. The FIX Trading Community provides a great way to talk and collaborate and address the issues. As this event showed, the regulators are keen to engage with market participants who are looking to provide solutions. The use of standards and FIX being the most widely used standard in the electronic trading space, makes absolute sense.
The FIX regulatory subgroups continue to meet, discuss and provide guidelines for the marketplace. We invite you to get involved, to participate. Help shape the future of trading by becoming a member.
By Tim Healy, Global Marketing and Communications Manager for the FIX Trading Community and bobsguide Contributing Editor