MiFID II: Achieving a comprehensive and compliant dataset

By Mohamed Boukari | 6 November 2017

In just a matter of months, firms must be MiFID II compliant. Yet, despite the impending deadline, the data keeps changing. While understanding of the requirements is one thing, can organisations be confident in their current ability to create a master data repository that can support the new regulatory reporting standards?

Putting understanding into practice

From January 2018, MiFID II compliance should help the European financial market to be stronger, more efficient and far more transparent. But with less than 100 days to go, many organisations are still working through the vast set of requirements.

On the one hand, delays to the compliance deadline have given organisations time to understand, define and refine the information demands associated with MiFID II, including, for example, the requirements of the 28 Regulatory Technical Standards (RTS) which provide clear guidance as to fields required for reference data reporting, transaction data reporting, pre- and post-trade transparency, as well as data sources and formats. Among many other reference data requirements, data must be timely, of the highest quality, auditable, governed, standardised, and validated across all types of financial instruments within the MiFID II scope.

However, understanding might be one thing; achieving a comprehensive and compliant dataset is another. With every market participant facing specific requirements, there is no one single source for all this data, no single format, or even content form. From multiple data vendors, trade and transactions repositories, internal systems, trading venues and regulators, to static reference data, time series data, entity relationship data and corporate actions, establishing a linkage between content is key. While the theoretical requirements of MiFID II compliance are now clear - not least the need for an instrument master repository that supports all the regulatory reporting standards - how much progress has yet to be made in putting this understanding into practice?

The end-to-end data processing model

Data is changing all the time. How can firms progress toward compliance whilst also adapting to continual data change? The need for EDM solutions to manage this data and deliver a single view of the truth is now clear: EDM systems provide the bridge between multiple siloed systems, including trading/risk systems and reporting solutions. Furthermore, they have the flexibility to acquire, normalise, enrich, consolidate and distribute data to other destinations, while also delivering essential timeliness, quality, and transparency.

Organisations should now have a clear vision of the end to end data processing model required for MiFID II compliance, however, not all of these data sources are available. Some of the attributes are still to be put in place, which means data vendors have yet to digest and publish new sources. As a result, organisations still face architectural changes to the database to add the new fields, schemas and rules. One option is to set up placeholders to those fields, based on general information from the regulator as to what will be required: once a data vendor releases the source, it will then be easier and quicker to create the mapping with standard model.

Therefore, while data vendors continuously update their data structures, services and products, it is crucial EDM systems have a high degree of flexibility and support to absorb these changes.

OTC derivatives data

One prime example of the still evolving MiFID II demands is the different attributes that have yet to be put in place to create the new International Securities Identification Numbers (ISIN) required for OTC derivatives – a service only recently launched by the global Association of National Numbering Agencies (ANNA) Derivatives Service Bureau (DSB).

Designed to meet the particular requirements of the derivatives markets, including near-real-time allocation of ISINs upon application by a user, the DSB’s underlying technology platform handles multiple definitions and descriptive data for OTC derivatives. User access to the numbering services can be through a web interface or direct integration to users’ front-office systems for trading and order management.

With only a few months left, there is little time for an in-house team to build tools to access this data quickly - but it is necessary to put a robust workflow in place to access ISIN codes quickly and effectively. Integrating this service into a holistic EDM system should be an imperative, helping to increase straight-through-processing, reduce manual intervention and, in turn, automate the MiFID II OTC data process for reporting within the necessary timeframe.

RTS reporting demands

One of the most significant implications of the wider scope of MiFID II compared to MiFID I is the sheer scale. In addition to the extension of data from time series data to include static reference data, entity relationship data and so on, the regulation applies to a wider range of financial instrument types. The scale is immense and the timescales for reporting against this vast data resource extremely small. By 9pm (CET) every company that is MiFID II compliant will have to send a report containing all the reference data of all the securities they have traded on that specific day, which means market participants must provide a complete audit trail of data sources.

With no room for mistake, organisations must pay attention to detail throughout the data journey from acquisition to reporting.  For equity like instruments for instance, multi-sourced data is acquired and needs to be normalised to allow for field by field comparison, and user-defined rules applied to create the user-specific version of true data. Users need to be able to determine which data source is preferable, requiring intuitive comparison.

Streamlining this process by using built-in data mappings - from data vendor to normalised to consolidated data - is essential to addressing data silos and centralising data to enable easy access and management, as well as supporting RTS reporting demands.

Conclusion

There is no doubt that the authorities will continue to focus on transparency, investment protection and avoiding market abuse. As such and in addition to data change, regulatory principles will continue to be amended. The ability to accommodate a new data source, additional scheduled reporting or enhanced coverage of instrument types will remain key. It is therefore absolutely crucial that organisations deploy EDM systems that offer standardised, flexible data models that act as a bridge between their siloed data sources.  Without an automated end to end data processing model, organisations will struggle to reduce the total cost of ownership and enhance straight through processing required to be both compliant and competitive in a post MiFID II world.