Back in 2005, a well-known football club chairperson went on the pitch at half-time to rouse the home crowd to get behind their losing team. She uttered the phrase “Let’s be ’aving you!” which didn’t seem to resonate with the fans too well.
A game of football is probably not the best analogy for MiFID II deadlines, but if it were, we would certainly be in the second half of the match, and there is an awful lot to play for. The chairperson’s impassioned cries for greater support do strike a chord with the work that the FIX Trading Community has been involved with over the past 24 months. On 20 October, The Investment Association kindly hosted FIX’s last 2016 event in London to provide a MiFID update. Whilst the purpose of these is to provide an update on activity and be educational, it also is an opportunity to call for volunteers to assist with the initiatives.
FIX has a long and strong history in cash equities but is used across multiple asset classes. As the electronification of different instruments that have been traditionally OTC continues to gather pace, the use of FIX will likely increase and it is, therefore, absolutely essential that the community grasps this opportunity to bring in members and non-members with the expertise to ensure the MiFID initiatives meet the requirements for all market participants.
The updates from the co-chairs of the FIX MiFID Working Groups (WG) were short and to the point. The Reference Data WG has clarified the data fields that are required for both trade and transaction reporting. However, there is scope for this to be reviewed again as part of the due diligence of the group. Additionally, it was noted that the recent announcement by the Association of National Numbering Agencies (ANNA) regarding the availability of specifications for connecting its Derivatives Service Bureau (DSB) to trading platforms and front office systems would be using the FIX Protocol.
Up next was the update from the Microstructure Working Group and an acknowledgement that algorithmic trading as defined by the regulators was far-reaching and would make the requirements for investment firms quite onerous. The WG is currently looking at the scope of these requirements and the infrastructure needed for the testing of algos. They are doing this by defining scenarios and use cases, particularly in cash equities markets.
The Transparency Working Group has been working closely with the Market Model Typology (MMT) Steering Committee, having created a set of scenarios that apply ESMA post-trade transparency flags to workflows. The MMT Steering Committee is currently working on an updated version of the MMT guidelines that aims to be MiFID-compliant. Furthermore, there are proposed changes to the FIX Protocol that are being reviewed by FIX’s Global Technical Committee with regards to transparency. The WG aims to move the initiative forward by working with other industry groups as well as internal FIX WGs and produce a Best Practices guideline on transparency requirements.
There was a quick review of the MiFID Workshop that was held in late September. The all-day workshop was targeting the implementation aspect to the MiFID conundrum and what was actually needed to fulfil a number of different requirements. One of the main contentious topics was on trade reporting and the obligation to do this. This is a new concept for the buy side and there will be a requirement for them to do so. Once again, different scenarios have been compiled trying to cover all potential eventualities and FIX and the members are playing a hugely important role by putting this document together.
Best Execution is no small topic. All investment firms are subject to it. The Best Execution Working Group has been very active in defining some of the ESMA terminology to ensure as much clarification as possible. The skeleton draft of the Best Practices guidelines for Best Execution is currently being worked on with the aim to create standard practices and avoid complexity with everyone doing different things. There is still much work to be done and expertise will be needed in different asset classes to complete the work.
The final MiFID update fell to the co-chair of the Order Data and Record Keeping Working Group. The focus was on the requirement of venues and exchanges to capture new information – information such as identity of the client, LEIs, passport numbers, ID numbers of individuals, identity of trader, etc. Additionally, there is a need to know in real time if an algo was involved in an order and how to flag trades if an algo is used on an execution. This is obviously a vast amount of data to collate, some of which is extremely sensitive. This has also brought up the issue of latency.
Increasing the size of a message with this additional information could lead to latency issues. To address this, the WG is exploring using short codes to represent the data required and then collect a mapping file at the end of the day. It will also be important to ensure the security of any personal information. By encrypting the information and storing it securely, the aim is to provide the regulators with workflows that meet their approval. This has received broad approval from the venues that have been involved in the initiative but there is still more work to be done.
Which is probably a good way to conclude – more work to be done. When the audience were asked at the end of the updates who will be impacted by MiFID, 90% of the attendees raised their hands. Whether you term it a juggernaut or a supertanker, MiFID II is on its way and FIX Trading Community and the FIX Protocol will be at the very forefront of ongoing changes to the way business is transacted.
If you are interested in learning more about the initiatives, joining any of the working groups and joining FIX Trading Community, please contact us at [email protected].