MIFID II reporting standards arriving to FIX Protocol – Why it matters
With MiFID II regulation arriving soon, the FIX Trading Community has been working since 2015 to create new protocols for the FIX messaging protocol especially designed for the new regulation. Getting released this week are three MiFID II extensions that cover protocols for clock synchronization, post-trade obligations and new data requirements.
Why you should care?
As MiFID II goes into effect in the beginning of 2018, two of the main reporting requirements the regulation will bring are Trade Reporting and Transaction Reporting. Trade Reporting will send near real-time reports to an Approved Publication Arrangement (APA), while Transaction Reports are sent on a T+1 basis to an Approved Reporting Mechanism (ARM) or National Competent Authority (NCA). [More on Trade vs Transaction Reporting and ARMs vs APAs]
For financial firms, there are several ‘pain points’ to creating these reports:
– Companies need to figure out what portions of their trading fall under MiFID II reporting requirements.
– Firms have to evaluate what is their existing trade data that can be used to create reports.
– If available trade files aren’t satisfactory to generate a MiFID report, where can additional information be sourced from?
– Once trade data has been aggregated, a system needs to be put in place to use that information to create MiFID reports.
– The MiFID II report then needs to be sent to the correct destination.
– Last, companies need to have a process to handle rejected reports as well as monitor all of their report submissions to an ARM, APA or NCA.
FIX Protocol and Data
As displayed above, MiFID II reporting is very much a ‘data’ play for financial firms, from receiving information, aggregating it, using it to create regulatory reports and submitting onward. This matches well with the FIX Protocol which is all about providing unified standards for the financial industry. The protocol helps traders and financial firms such as banks and brokers send and receive trade and market data related messages between each other that power transactions.
With the advent of MiFID II reporting requirements, new streams of data will be required to be collected for each transaction. Items include synchronized time stamps between counterparties and trading venues and drill down counterparty details related to how a trade was executed such as the algo used to create an order and identification information of end retail clients submitting trades.
Also, similar to derivative reporting regulation of EMIR and Dodd Frank, trades will require unique identifier codes that are distributed among counterparties. However, often many of these details aren’t available immediately at the time of the trade. In replace, information is gathered between counterparties as trades are settled.
By adding MiFID specific extensions, the FIX Trading Community aims to provide additional inputs of messaging information that can be disseminated between traders, trading venues and financial firms at the point of execution. A result of more information passed at the time of the trade, it reduces the amount of data that is collected in the post-trade process. This in turn helps reduce the pains of aggregating trade information to create the end MiFID II reports.