Approved publication arrangements (APAs) are interpreting rules set out in the second Markets in Financial Instruments Directive (Mifid II) differently, impacting the quality and clarity of post-trade data, according to consultants and market participants.
“There are supposed to be some aligned data standards but every single APA has a slightly different approach to how they put data out there and the format that it is received in and the details and the information contained therein,” says Damon Batten, managing consultant at Bovill.
Under Mifid II an APA is the authorised person at each investment firm responsible for consolidating data into a continuous live stream.
As yet, a consolidated tape provider for non-equity products has not materialized.
“One of the key provisions of Mifid II was the establishment of a consolidated tape provider (CTP) for non-equity products,” says Hubert Deroubaix business development director for regulatory products at ICE data services. “To date, no provider has been appointed, meaning that transparency data has to be collected from the various APAs.”
This has led to a deterioration of a post-trade data, says Batten.
“Frankly some of these different providers are not doing a great job, data can be missing and incomplete, [or] it’s only available for a very short period of time.”
Because of the complexities inherent in the Mifid II compliance standards, Deroubaix suggests delays were inevitable.
“The Mifid II transparency regime operates a complex set of publication timings, meaning that trades may not reported in real-time, or even on an end of day basis,” he says. “Some trades may even qualify for publication delays of several days, if not weeks. This can lead to reduced transparency for certain asset classes, especially where the instrument typically trades via a systematic internalizer or on an Organised Trading Facility (OTF).”
Trade data has also been impacted by a lack of understanding at venues – who may have misinterpreted the rules constructed by the European Securities and Markets Authority (Esma).
“In the initial stages of Mifid II, some regulated venues appeared unaware that lack of trading in an instrument should be reported as a zero trade for the day. This has led to venues not reporting anything where no trade was affected. As a result, some trades in illiquid instruments failed the regulator test as too few observations were received.
“The knock-on effect was that Esma published consolidated volumes that were substantially lower than actually observed by market participants. The process around zero trade reporting has been clarified in an Esma Q&A paper, this should lead to better transparency during 2019,” he says.
For Brian Lynch, CEO of RegTek Solutions, problems still lie with national competent authorities (NCAs) ability to return post-trade data.
“What is pretty worrying is the fact that it’s still very hard to get data back from most of the NCAs who are responsible for collecting and using the data,” said Lynch.
“If getting one’s own data back in a coherent, usable form is difficult, this doesn’t bode well for the utility of the data by the NCAs. Even meeting the minimum control threshold of ‘regular reconciliation between front office systems and NCA’ is hard, if not impossible in cases,” he said.
There have been attempts by APAs to pool Mifid II data – to be a consolidator of data without having to be a regulated consolidated tape provider – but not much has been done so far, according to Batten.
“To be a half-way house to have some of the data but not all of it and therefore not to have to meet all of those additional regulatory requirements, I think some of the APAs have gone down that path, so they have been talking about pooling each-others data to try and get a more complete picture but again, it doesn’t seem to be something that has yielded a great deal of progress so far.”
With all of these difficulties, there is an opportunity for fintechs to provide an inhouse solution for banks to be able to collate this data themselves, says Batten.
“If I’m Barclays, and I want to get all the information about every bond that was traded yesterday, today it is a very difficult process. I have to go to each APA to get the complete picture, but if I could develop a smart solution of my own that could grab all of that data for me in real time, or at least snapshots through the day, then that would be quite a useful solution rather than a single source of data which doesn’t seem to be on its way,” he says.