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Linedata Exchange: MiFID II looms large for asset managers and hedge funds

Over 150 financial and IT industry specialists attended the annual Linedata Exchange Europe conference in London, debating the industry’s readiness for the implementation of MiFID II in 2018.

Matt Gibbs, Front Office Product Manager at Linedata, the global solutions provider dedicated to the investment management and credit industries, highlighted that despite the delay in MiFID II’s implementation date, firms must review whether they will have done enough to remain leading players in their field.

“The delay in the introduction of MiFID II is welcome. However, the date by which MiFID II needs to be put into national law remains July 2016. While companies will have made steps to comply with this regulation, the extent to which they will be able to differentiate themselves from their competitors is debatable.

“MiFID II requires elements of increased monitoring and venue reporting. While firms have made steps in this direction, through quarterly monitoring of outliers and brokers, and broker reporting with appropriate benchmarking included in TCA/Best Execution reviews, this does not go far enough. Firms should be offering daily monitoring of outliers and brokers, along with documentation of outlier reviews. In addition to broker reporting, market execution venue reporting should be performed, with the results incorporated into execution policies.

“Firms have also implemented steps to measure and minimise their costs and assess execution factors. TCA and Best Execution systems have been put in place to calculate costs at the parent order level, and factors around price, cost and speed are aggregate metrics available in reports. However, firms should take the next step and ensure execution strategies are aligned to investment objectives and reassessed frequently, along with execution factors in price, cost and speed becoming incorporated into cost reporting and benchmarking.

“Although the recent vote to leave the European Union would appear to allow British regulators to adopt their own strategy towards market transparency as agreed by the G20 in 2009, it should be noted that even if British businesses do find a loophole:

  • All European instruments will require compliance with MiFID II
  • All derivatives with underlying European instruments will require MiFID II compliance
  • Some sort of regulatory solution to the OTC markets will be required

“MiFID II is all about transparency, and providing the required information to both clients and regulators. Companies must carefully consider the state of their best execution processes, and ability to assess that of third parties as the onus of responsibility has become much broader. Companies which are able to do this efficiently and cost effectively, and still provide an appropriate level of volume and depth, will be those that find themselves ahead of their competitors.”

Linedata is a globally recognised leader in the investment management software solutions assisting financial institutions with the development of their businesses worldwide. Linedata’s buyside solutions are used to manage US$2.5 trillion in assets globally.