Thomson Reuters announced a partnered with Trax on August 22 to enable systematic internalisers (SIs) to more easily meet their Mifid II reporting and compliance requirements.
As part of the agreement, Thomson Reuters will provide Trax with its reference and market data to support Trax’s Mifid II regulatory reporting and SI determination services via its Approved Publication Arrangement (APA) and Approved Reporting Mechanism (ARM).
As of September 1, the SI regime becomes a mandatory process for equity and bond market holders.
On August 1, the European Securities and Markets Authority (Esma) released thresholds for equities and bonds, with derivative thresholds pushed back to February 2019.
“In the current month, banks need to assess based on the first six months trading whether they’ve crossed those thresholds” says John Mason, head of regulatory and market structure propositions at Thomson Reuters.
“We’ve partnered with Trax on the basis,” says Mason, “that we, the market data aggregator, can bring the denominator figure - the total market volume - to the table, while Trax brings client data and trade, as the MTF APA numerator. Now that Esma has revealed the thresholds, we can now make the entire calculation using the client trades provided by Trax, divided by the denominator and then compare to the thresholds."
Ultimately the partnership aims to provide more insight and transparency on the position of organisations to SI thresholds.
“We’re trying to give organisations the ability to actively manage where they are as an SI. Unlike the quarterly Esma threshold process, we’re providing a daily, real-time approach, allowing them to make those active management decisions as to whether they trade on their central risk book or trade away on a venue if they are approaching an SI threshold. Without a real-time view, they could suddenly finding they’re an SI when they weren’t expecting it,” says Mason.
But the SI regime has been far from plain sailing and remains a work in progress, particularly from the accounts of firms who opted-in six months ago and filed their report at the end of July for the first six months at the end of June.
“The SI regime poses a lot of challenges. One of the challenges we’ve heard from the SIs who opted in was around the one-size-fits-all approach that RTS 27 has to all financial instruments” says Mason.
“The nature and elements of the market, particularly voice traded markets present its own reporting challenges, as well as the ongoing difficulties the industry has had with reference data and consistency. I don’t see those challenges disappearing and, if anything, those challenges will become exacerbated, because of the timeframe being shortened.”
And shortened it has: an organisation will have one month to determine and register if they’re an SI by September 1 before filing their first report in late December (for Q3).
“Organisations caught by the SI determination regime rather than opted in only have three or four months to produce their first RTS 27. Given what we’d heard from those opted in, that’s certainly not a trivial task.”
But the thresholds and processes around the regime will need to be reviewed with a Brexit context.
“Come next year with Brexit the thresholds will change," says Mason. "The industry will ask: ‘will there be FCA equivalence of the determination thresholds and the like?'"
“Quite simply, Mifid II has to change because the markets change and it will have to make adjustments accordingly. The vastness and complexity of it means you’ll probably be seeing revisions and amendments for at least another couple of years.”
Ultimately for Mason, this should come as no surprise: “It’s a big ask to expect the industry to implement something in six months when it took ten years to author.”