MiFID II Preparation – Reporting to ARMs (Approved Reporting Mechanism)
Although going into effect in 2014, EU financial firms are still getting up to speed with EMIR’s derivative reporting regulation. But, quickly arriving on the horizon will be the MiFID II directive which will add additional reporting requirements, client administration transparency and execution quality standards.
Despite MiFID II not scheduled to take effect until January 2018, at Cappitech, one of the popular questions we receive when discussing Capptivate, our SaaS platform for automating EMIR reporting (more on Capptivate), is whether we have plans to provide support for MiFID II.
The answer is “yes” and plans are already in action towards building the infrastructure and rules engine for the reporting. One specific area of focus is in relation to evaluating ARMs for the sending of the reports.
Approved Reporting Mechanisms (ARM)
Short for Approved Reporting Mechanisms, ARMs are the MiFID II equivalent of trade repositories (TR). Like TRs, ARMs are authorized by the European Securities and Market Authority (ESMA) to collect investment firm trade transaction reports. The data is then maintained, secured and stored in a way that it is accessible by ESMA and EU financial regulators to analyze the reports.
Who are the ARMs for MiFID II? Look at MiFID I
While MiFID II entails new data collection requirements for ARMs, there are already six ARMs operating for MiFID I. The existing ARMs include reporting units from Bloomberg, Abide Financial, the LSEG (UnaVista), TRAX, Euroclear and Getco Europe.
When looking towards who plans on becoming approved to operate an ARM for MiFID II, the short list includes many of the same names operating MiFID I ARMs. Having stated their intentions to operate MiFID II ARMs include UnaVista, Abide Financial and TRAX. Also, Regis, a division of Deutsche Bourse that provides TR services for EMIR reporting has plans to operate an ARM as well.
UnaVista/DTCC MiFID II partnership
Among the coming reporting hubs for MiFID II, one of the more discussed ARMs is UnaVista. UnaVista recently disclosed a key partnership and will be offering connectivity to their ARM through the DTCC.
The deal is worth noting as the DTCC operates the largest TR in Europe. By offering trade reporting services for the major financial jurisdictions such as in the US, Japn and Australia, many of the world’s top banks and investment firms use DTCC to handle all of their cross-jurisdiction reporting.
For MiFID II, the DTCC’s partnership with UnaVista will allow their customers to prepare reports through their existing data connections with the DTCC, but have them sent through to UnaVista. The deal is a ‘white label’ of sorts, but DTCC clients will still have to have a commercial relationship with UnaVista who opens them a MiFID II reporting account and invoices them.
Picking an ARM
Like EMIR reporting and choosing a TR, costs are a key part of the equation when determining which ARM to use for MiFID II. But, pricing is only one of the key factors. Other factors that should be considered when choosing an ARM are support, test environments and ease of connectivity.
Support – Due to the complexity of MiFID II rules and IT requirements to handle connectivity of preparing and sending reports, having an ARM that is responsive to both compliance and technology questions is important.
Test environments (UAT) – For investment firms preparing themselves for MiFID II reporting, some ARMs are already providing a test environment for reporting trades. With MiFID II reporting rules still not finalized, the test environments remain a work in progress, but they provide a solid solution for firms to get a jump start with their reporting process.
Connectivity – As with the DTCC and UnaVista partnership, connectivity is a key factor for choosing an ARM. Many firms will inevitably use UnaVista strictly due to desiring to their partnership with DTCC. Also, firms sending MiFID I reports, may see an easier onboarding process by using those same ARMs for MiFID II.
In addition, many order management solutions (OMS) and trading platforms have plans to provide modules to make it easier to specific ARMs. As such, depending on an investment firm’s existing trading and reporting infrastructure, they may find it easier to report to one ARM versus another.
To learn more about Cappitech’s preparations for MiFID II or our EMIR Reporting platform, send us a message.