The big conclusion: a lot of work still needs to be done to scope out the operational implications of MiFID II / MiFIR and firms will need to coordinate responses quickly once the consultation process begins in June 2014 – far earlier than most firms had foreseen or included in their current work plans.
Although most of the provisions for MiFID II / MiFIR are due to come into force in 2016, it was noted that the consultation process was expected to start this June, and firms would only have a total of 8 weeks to respond. Those responses should be coordinated via the relevant trade association, depending on the workstream in question.
Learning from the lessons of EMIR, the quality of technical standards input from firms this year will have a direct bearing on the difficulty of the MiFID implementation over the next couple of years.
JWG’s research findings highlight a large number of ‘known unknowns’:
- Scope. Extending definitions to catch all instruments, illuminate darkness and open market
- Competition. Non-discriminatory access and ‘reasonable’ commercial terms could pose significant changes to providers of market infrastructure and data
- Transparency. Extending market and regulatory reporting scope to cover more asset classes
- Operational risk. New controls, processes and governance for algo trading, best execution and order handling
- Investor protection. Additional requirements to safeguard customers – especially municipalities – via new papering and reference data collection.
We have also concluded that it is possible to classify technical standards issues into four main buckets:
- Papering. Submitting new information to regulators and agreements with customers
- Identifiers and protocols. How information is tagged and transmitted to the market and to the regulators
- Systems and controls. Technical workflow determined by new operational requirements, e.g., algo trading, order handling and market synchronisation
- Market-wide testing. Any structural changes to market practices need coordinated testing prior to go-live, e.g., OTC derivatives trading requirements, consolidated tape.
With up to 147 workstreams being investigated as part of MiFID II / MiFID, it is vital that the industry gets together and readies its responses to ESMA’s technical consultations as quickly and effectively as possible. That will be the industry’s first priority.
Looking further ahead, once technical and implementation standards have been bedded down next April, the focus will turn to coordinating schedules and working backwards from go-live dates to ensure there is ample time to develop and test systems prior to implementation.
Along the way, it was agreed that getting engagement and raising awareness across the industry will be crucial factors for a successful implementation. These involve both a coordinated approach to communications with the buy-side, including support from trade associations, and efforts to raise awareness internally within firms to ensure senior management realise the scale of the challenges and allocate budget and resources appropriately.