Article
MiFID II: information warfare unleashed

JWG analysis.

The continent was rocked by far more than parliamentary elections on 22 May.

Early reports from major financial centres confirm the impact from the 844 pages of text released by ESMA on MiFID II / MIFID to be about a 9 on the Richter scale – so high that ESMA’s website gave up when asked to distribute copies at the same time it was taking CSDR comments.  Thankfully, it is now back online and printers are overheating whilst spewing out 8-meg packages of joy in time for a bank holiday weekend in the UK.  Hopefully resupplies of toner should be arriving by Tuesday …

As previously reported, we don’t have much time to round up the industry’s suggestions on how the market infrastructure should work in 2016.  In an effort to respond to 100 requests from Brussels for further clarification, ESMA has generated 860 questions for us to answer.  A grand total of 45 days from the time of issuance to 1 August, with a hearing in Paris 6 weeks from now.  See below for a quick summary of what they’re asking about.

MiFID II/ MiFIR 22 May 2014 ESMA 

At best, capital markets professionals read slowly.  They do, however, talk quickly.  We’ve never tried to get them talking about 100 questions a week, but JWG analysts are delighted to be using JWG’s great new regulatory data management platform to ingest the content and extract meaning from it – ready for action.  We would love to tell you more about it – and we will soon – but we can’t right now as we haven’t flipped the switch on the website yet …

Anyway, whilst we were loading the tomes into the system we can’t talk about, we had a chance to round up our views of what we were seeing late last night.  We have a long way to go before we’ve digested it all, but we can offer some initial observations:

1. This is information warfare.  See the list of 245 questions from the Consultation Paper (i.e., the stuff that you really need to focus on quickly) here.  The sister Discussion Paper list of 615 questions (that you have a bit longer to look at) can be found here.  We can only hope you can access the MiFID I, Dodd-Frank and MiFID II documents they refer to in order to make sense of it.  If not, give us a call to see how we do it.
2. Technical devils infest the detail.  There is a serious reshaping of the marketplace at level 2 and commercial interests are definitely in play.  Transaction reporting record lengths have skyrocketed 300% to 93 fields.  Identifiers are front and centre of the discussion.  Serious commercial issues about market data pricing have been raised.  Definitional issues abound … and, perhaps most worryingly, the prescriptive record keeping audit trail has raised its ugly head.  Changes to the detailed rulebook will impact different infrastructure, data and systems players in different ways … so beware!
3. Questions, questions, questions?  The industry won’t have the time to focus on all the questions presented, therefore it will need to prioritise the most important themes and come up with those answers.  The usual triage would seem appropriate – 1/3 of these questions are really critical.  However, one needs to pay particular attention to the linkages between the Consultation and the Discussion Papers.  If something is critical in a CP, it could well cover issues that are in the DP.  Lots of late nights will be spent in July trying to wire together the answers!
4. Get your data ready.  The questions ask for costs, volumes, timings, working practices, standards, etc.  Having a view of your current state is vital or you won’t be able to influence any proposed changes.  You will need to urgently organise surveys, ask questions of your various functions and run discussion workshops so you can have the all facts on the table for the end of June.
5. 1000 flowers will bloom.  These questions will apply to different disciplines in very different ways.  From a market data vendor’s perspective, there are clear incentives to protect and defend the status quo.  Those in procurement departments will definitely think differently and those in exchanges will have a different view again.  We predict hundreds of responses of varying size and quality dropping into ESMA’s inbox very soon.

Of course, there is no substitute for ‘DIY’ and I’m sure if you read it (or had the system we can’t talk about) you could spot many more key themes.

The point of all this is that if you are reading this, YOU need to do an impact assessment and work out your technical priorities by theme urgently.  If you have a DFA, EMIR, CSDR team … get them into a room and review what they think.  If you can find the poor soul who commanded the MiFID I battalion, dust them off and get them reading.  If you are not already on a JTAG distribution list, get on it.  And, most importantly, come to our MiFID II CDMG meetings.  We already have 40+ on the guest list for 12 June and have had some initial interest in an agenda-setting phone call next week.  If you want to join in, give us a call!