Building reference and benchmark data isn’t easy – MiFID II officially delayed until 2018

The European Council (EC), officially announced last week that a one-year delay of MiFID II and MiFIR has been put in place with the two initiatives not expected to take effect until January 2018. The official statement was more of a formality, with the EC having proposed the delay in February.

Within their announcement, the EC cited “Implementation Challenges” with the European Securities and Market Authority (ESMA) and other financial authorities needing more time to build infrastructure in place to handle the new trade reporting rules.

Dream scenario value adding reports

As part of the MiFID II initiative, financial participants such as exchanges, brokers, banks and buy-side funds will have to report information pertaining to execution quality. Beyond just building infrastructure to collect data that will be used to compare and analyze execution information, ESMA and participating firms also face a massive barrier of sourcing reference data. Such reference data includes commonly accepted benchmark pricing of liquid assets as well as tick by tick prices and market depth of trading instruments available at the time of each order.

In a dream situation, the collected information and reference data will provide massive improvements in execution quality transparency. For example, with the data, brokers will be able to illustrate to their customers that trades executed were made at the best available prices. Customers will also have available information to filed complaints when their executions were worse than available market conditions.

Following years of pricing scandals such as those that effected LIBOR and FX Fix rates, the dream scenario of MiFID II provides a solution for broker and bank customers to have execution transparency to prevent further scandals from taking place.

Nonetheless, as the delays illustrate, ESMA and the EU are realizing that building such execution quality reports into practice is easier said than done. Specifically, many firms may experience difficulties in sourcing affordable market data, as historical tick by tick pricing can easily cost annually in the tens of thousands of dollars for even smaller firms with wide ranging asset class offerings.

Ron Finberg
About the author: Ron Finberg
Ron is a Regulatory Product Specialist at Cappitech and supports customers in their compliance of MAS OTC reporting, SFTR, EMIR, MIFID II and ASIC derivative reporting.