Getting over the line for MiFID II is only part of the journey for investment managers. In anticipation of the 3 January 2018 deadline, some asset managers will have thoroughly tried and tested systems and procedures in place, but many will have tactical enhancements that barely achieve compliance. The process of building out and improving systems to tackle MiFID II more efficiently will continue for weeks, months or even years after the January target is long since forgotten.
One of the key challenges presented by MiFID II is that of transaction reporting. The scope of products that need to be reported has been extended, with transaction reporting now being required for all products traded on European RMs, OTFs and MTFs. In addition, the number of data fields required for MiFID transaction reporting has also greatly increased. Updates are being applied to transaction reports, portfolio reports, holding statements, loss threshold reports and costs and charges reports. The transparency requirements apply to both pre- and post- trade reporting.
Immediate post-trade disclosure must be ready on Day One, yet many firms appear to be awaiting development work by third parties. This development often includes the market need for FIX 5 with MiFID extensions. Best execution and transaction reporting must be ready on day one also. A fundamental question that remains is whether an asset manager can replay a trade with data reflecting best execution and all the requisite commission split processes and values.
As mentioned, a great number of asset managers and brokers will be seeking tactical enhancements, adding supplementary code to their existing systems. One solution is offering a strategic enhancement, where the MiFID functionality is built into the standard model and code base. These solutions have been tested and are now live in financial institutions such as global hedge funds, international asset managers and securities services firms.
Handling the capture and retention of all the additional elements that asset managers need to report on is also critical, providing a single reference point for all MiFID reporting attributes that can then be passed onto other systems to facilitate reporting requirements. Getting such a massive volume of data from Point A, through Point B and on to Point C is the challenge. There may be 20 attributes per trade, supporting thousands of trades per day, so there is far more data moving through an asset manager’s infrastructure to then channel to a variety of destinations.
Commission unbundling forms another ingredient in the transaction reporting mix. In the past we simply reported a broker commission, but that broker commission could consist of various elements. Today we break it down into the executing commission and the research commission for other broker services.The unbundled commission is then communicated to DTCC's Omgeo Central Trade Manager (CTM) for trade matching and then on the SWIFT settlement messages to interested parties. Firms have options on how to handle this requirement and they can report on commissions outside or within the transaction.
Getting transaction reporting into a live production environment well ahead of the deadline has given an enormous sense of comfort to clients. It’s a big ‘tick in the box’; especially while there are several other areas of MiFID II that still present a challenge to asset managers. Many firms are planning to work all through Christmas and New Year’s Eve, then battling on through to 3 January to get the minimum acceptable system in place for Day One - with many issues still to be unravelled after the deadline.
How many of your vendor platforms are switched on and ready for MiFID II, so you can go away and enjoy your Christmas? There are multiple systems that need to be readied, but transaction reporting doesn't have to be one of those you lose sleep over.