Episode 10
MiFID III & Digitalizing Markets

Since the 2008 crisis, the markets have been asked to put everything on a venue, deliver vast quantities of transparency data, protect the customer and deliver growth. It has taken Europe over 15 years to build a mountain of rules that is millions of paragraphs high and stretches across the globe.

Implemented in 2016-17, MiFID II moved very far, very fast and many argue that it has not achieved market transparency goals. This comes at a big cost. Without high-fidelity data, regulators are left with dirty windows on the market, brokers and asset managers are paying over the odds for venue data and retail investors are stuck with high cost market access (i.e., PFOF).

Cries for faster, better, and cheaper access to financial services by millions of investors have shaken the markets this year.  MiFID II’s market infrastructure and post trade transparency regime is fundamental to democratising markets and it is being rethought on both sides of the channel while new SEC and CFTC rules are debated. The alignment of detailed data standards will be key to establishing market trust and confidence with new trading rules, transparency and reporting obligations.

The politics surrounding the 2021 trading landscape are much different. The UK is free to chart its own, more global course. Europe, without the original drafter of much of MiFID at the table has more latitude to reshape the agenda. The US, a big winner in the early days of post-Brexit trading, has a much different political focus.

Europe has started the transparency review process, but HM Treasury has hit the ground running with a summer consultation which proposes broad changes to markets, practices and infrastructure. Specifically:

• Trading & venues. Venues, Systematic Internalization, Best execution, pre-post trade transparency, resilience
• Post trade. Post trade transparency, reasonable market data commercials, and the elusive consolidated tape
• Reporting. Trade and transaction standards, reporting and identifiers.

We asked market experts Matthew Coupe, Director, Cross Asset Market Structure, Barclays, Kirston Winters, Managing Director, MarkitSERV and Gavin Stewart, Director Financial Services Group, Grant Thornton to discuss what impact the UK consultation will have on the global trading landscape.

We concluded that, taken from the consumers perspective, most of the challenges are aligned across the markets. What is different is the political focus.

To frame the nuts and bolts of this new digital marketplace, subject matter experts will be required to work collaboratively across public and private sector institutions.

Together, their job is to translate the political objectives into detailed standards which reduce friction. In order to do that we need to take away some of the complexity and tie rules back to what really matters to the end investors.

Clearly, there is a huge opportunity for collaboration and joint working across the channel and pond which JWG welcomes the opportunity to support!

Additional resources:

• To join the JWG Trade Surveillance special interest group, email Corrina
• Access the JWG Surveillance LinkedIn here or Trading here
• To create your own JWG RegTech Intelligence Hub, sign up here
• To register for JWG’s 16/17 November 2021 conference, see here

Key topics

• RegCast 7: Democratized markets

• RegCast 3: Digital roars and new regulatory frameworks
• RegCast 2: 2021 Retail Madness, Digitized Markets and Future Regulatory Responses
• TSS 24: Digital accountability in a democratized finance sector

• EBF MiFID 2 priorities here: “allow parties to agree between themselves on who should be the reporting party” “we propose that both the RTS 27 and RTS 28 reports are deleted from the MiFID framework”
• FCA business plan here “”We will be more data-driven to find and stop harm quicker, and will respond faster and more assertively to new challenges. We will continue to work closely and proactively with firms, consumer groups and partner organisations in the UK and internationally. We will use data and intelligence to ask questions where we suspect misconduct, even where we are not the principal regulator. Together, we can drive up standards.””
• AMF press release here. cries for ESMA empowerment and appointment of a new management board
• ESMA final report on market data here. Application date for these guidelines has been set for 1 January 2022
• ESMA public statement on PFOF here #investorprotection #conflictsofinterest #bestexecution #inducements #costs
• ESMA transparency CP here. #commodities #nonpriceforming #posttrade #dataquality #CTP #timestamps #price #quantity
• TSC future framework for regulations here. The regulators have a key role to play in designing and developing the rules with appropriate Parliamentary oversight
• Robert Barnes on Exchange invest here. Hear the view on #UK #EU #mifidiii #marketstructure evolution @35:40 #stp #dvc #liquidityfragmentation #SI #smartorderrouting #costmanagement #digitizedcapital markets #cdm #drr

!