http://tabbforum.com/videos/fix-emea-trading-conference-2018-podcast

On March 15, 2018, the FIX Trading Community celebrated its 10th annual EMEA Trading Conference at Old Billingsgate in London. The full-day event was attended by more than 1,000 people and covered the most pressing issues facing the institutional trading community, providing a neutral platform for buy-side, sell-side, exchanges, vendors and regulators to share their ideas on how the community can continue to collaborate. In this FIX podcast, a team of experts looks back over the past 10 years, discusses the key themes that came out from the event, and predicts what we will be talking about in five years’ time. Moderated by Julia Streets, Founder & CEO, Streets Consulting, the guests include Courtney McGuinn, Operations Director, FIX Trading Community; Jim Northey, Co-chair of the Global Technical Committee, Americas Region, FIX Trading Community; and Matthew Coupe, Co-Chair EMEA Regional Committee & EMEA Regulatory Subcommittee, FIX Trading Community, Director, Barclays Investment Bank. (podcast, 16:20)

With any and all significant legislation, the industry have voiced their opinions on MiFID II as the deadline came and went. The concerns, challenges and expectations from various industry leaders have been collated below.

Yesterday, January 3, marked the seven year wait for the sequel legislation that builds upon the groundwork laid out by the Markets in Financial Instruments Directive 2004. The Directive’s core principles look to increase the transparency across the EU’s financial markets in light of the 2008 crisis, primarily focusing on Over-The-Counter transactions, as well as protecting EU citizen rights.
MiFID II, the revised version, looks to increase and extend those transparency requirements with near real-time reporting whilst also acting as a standardisation of regulation. It will have significant impact on High-Frequency-Trading as trade orders need to be posted for at least half a second, far longer than they currently are; evidently, this will have liquidity consequences.
As with all regulatory changes, the practicalities are yet to be ironed out. As you will see below, the FCA aren’t taking prisoners and it’s only a matter of time before fines are issued. Or is it? No doubt there will be leeway for smaller firms with less weight who will struggle to implement the necessary IT requirements. As the cliche goes, only time will tell, but if you’re impatient here’s a smattering of industry leaders offering their opinion on MiFID II.

What the Standards Bodies think: Tim Healy, Global Marketing and Communications Director, FIX Trading Community
“The regulators will be monitoring activity and looking to ensure compliance. What they will be keen to see are that best efforts taken by firms to adhere to the new regulation. They will be mindful that companies may initially make some errors. What they will be unlikely to tolerate for too long is a blatant disregard for the new regulation. This is here to stay and the FCA’s role will be to enforce ESMA’s legislation.
What will be interesting to see is the innovation and how companies adapt to the changes. Best Execution becomes a requirement rather than a theoretical aim and the unbundling of research and trading is expected to lead to changes in how the buy side value their research.
Of course, these are known unknowns as someone famously said. The coming days, weeks and months will provide more colour as firms position themselves appropriately and FIX Trading Community will be here to address any FIX related implementation issues that arise for our member firms now that the go-live date is here.”

What the FCA think: Mark Steward, Director of Enforcement and Market Oversight, Financial Conduct Authority
“Effective market oversight depends on accurate and timely reporting of transactions. The obligations under EMIR, as with MiFID, are key aspects of such oversight.
“It is vital that reporting firms ensure that their transaction reporting systems are tested and deemed fit for purpose, adequately resourced and perform properly. There needs to be a line in the sand. We will continue to take appropriate action against any firm that fails to meet requirements.”

What the banks think: Sophie Guibaud, VP of European Expansion at Fidor Bank
“MiFID II is a key piece of European-wide legislation.
“This regulation, along with the incoming GDPR piece of legislation, means that financial organisations will be looking at immediate options to help them decrease their regulatory risk and costs, while also improving the customer experience this year.
“The new regulations will have a huge effect as financial organisations’ relationships with regulators will rely upon real-time data to be shared to improve and speed up risk management and market stability, all through the power of APIs.”

What Investment advisory services think: Charles Owen, Founder of CoInvestor
“CoInvestor welcomes the standardisation in the alternative assets investment sector that has now arrived with MiFID II. We are fully aligned with financial advisers on this, who have the end investor front of mind. Getting the best for the advisers on our platform involves providing greater visibility and more easily comparable information, which a suite of new regulations now require, not just MiFID II, but also PRIIPS.
Historically alternative assets have been more opaque than other asset classes, but this is changing now that most fund managers are having to comply with these new regulations. The digitisation of alternative assets investing, with all that involves, has brought about greater transparency, the ability to have clear audit trails, and creates an ability to access all comparative data in one place, which will only serve to improve best execution for the end investor. While some smaller fund managers are still struggling to get everything in place, we can see things heading in the right direction.
MiFID II will be a process, and the 3rd January is the deadline but better standardisation won’t be something to be ticked and filed away. It will be a continual improvement in practices and we know that will benefit the end investor.”

What technology service providers think: Stefan Negrila, Head of Regulation at Excelian, Luxoft Financial Services
“As expected, most institutions were only partially prepared for MiFID II. Therefore financial regulators have granted last minute exceptions to ease the pain and ensure orderly function of the markets. Futures exchanges in the UK and Germany were granted a 30 month extension by the FCA and BaFin respectively, for example.
“A lot of work still needs to be done. Even after the bulk of the compliance work is finished, firms need to adapt to the new reality. Those that are fully prepared have come out ahead and are already picking up trading volumes from competitors.

Original article can be found here

Huw Gronow, head of dealing at Newton Investment Management and co-chair of FIX Trading Community’s EMEA investment management subcommittee, said new regulations in the European Union offer a good opportunity for buyside dealing desks to add value to the investment process through using execution data.

Gronow spoke on a panel last week at the London regional briefing for the FIX Trading Community, the non-profit industry body which sets technical standards for global trading.

MiFID II will strengthen the requirement for firms across the European Union to evidence the steps taken to achieve best execution across a range of asset classes, not just equities, from 3 January 2018.  In October FIX released of its recommended practices for best execution reporting required by MiFID II after 18 months of consultation with a range of market participants.

Gronow said: “MiFID II presents a good opportunity for buyside dealing desks to add value to the investment process through using execution data.”

He continued that Newton Investment Management will be making choices on who to use for execution in the New Year once empirical data is available as a result of MiFID II.

“There will be a surprising number of new entrants, who will be in a better position to cope with liquidity conditions, and we think we will see an immense change in the execution landscape,” added Gronow.

MiFID also requires the separation of payments for research from trading commissions in order to increase fee transparency. Newton Investment Management is amongst the many asset managers who have decided to pay for research themselves, rather than passing the cost onto clients.

“MiFID II has been a voyage of discovery,” said Grownow. “We are unbundling completely, and for the first time we will see discrete competition for execution and for evidence of sufficient steps to achieve best execution.”

FIX released of its recommended practices for commission unbundling as required by MiFID II last month.

Rebecca Healey, co-chair of the FIX Trading Community’s EMEA regulatory subcommittee and head of EMEA market structure and strategy at Liquidnet, said on the panel last week that unbundling will have a “monumental” impact on execution in terms of selection criteria and the data required to quantify execution.

She said: “The control process will be front and centre for ensuring data accuracy, as well as analysing, tracking and monitoring execution.”

MiFID II only applies to the European Union but large US asset managers have European operations and there were concerns that asset owners were likely to want greater fee transparency on a global basis. However, US federal regulations requires US asset managers to use client money to pay for research. As a result the US Securities and Exchange Commission issued guidance in October that it will not punish firms for complying with the MiFID II unbundling requirements.

Healey added: “I recently visited the US and talked to 84 asset managers who may not all need to be MiFID compliant but who recognized that they need to be MiFID aligned in order to meet client expectations on unbundling and execution. This will lead to demands on technology to drive further innovation and accountability.”

Another panellist said that it easy for the buyside to try out new brokers and unbundling will lead to that process being accelerated. The panellist said: “Brokers can compete on a level playing field due to unbundling and there will be winners and losers.”

In addition the FIX panel agreed that January 3 will only be the start of changes under MiFID II. More work will be required as the European Securities and Markets Authority releases further guidance and reviews the consequences of the regulation once it is operation

This winter’s regional FIX Trading Community briefing, hosted by Morgan Stanley in New York, brought out veteran technology experts and raised fresh questions as the industry stares down twin-barreled trade reporting mandates on both sides of the Atlantic—with MiFID II’s imminent January 3, 2018 go-live date, and deepening drama behind a missed November 15milepost for the US Consolidated Audit Trail, or CAT.

Much of the FIX agenda in 2017 has faced next-generation questions—from retrofitting the standard for cybersecurity and crypto-currencies, to facilitating better pre-trade price transparency and deeper post-trade automation. But a new wave of old-fashioned trade reporting remains front and center.

That level of attention is owed to the breadth of technical requirements and predicted globalization of MiFID II; it has also played out over the circuitous history and proposal process of the CAT. Taken together, though, they represent a mutual, aggressive aspiration among regulators. As one panelist put it, “the pendulum has swung completely in the other direction” regarding trade data — whether to address the perception that traditionally-bundled research and execution fees have run amok in Europe, or improve from the aftermath of the flash crash of 2015, which exposed regulators’ limited capability to connect the dots across contemporary equities venues in the US. In short: expansive collection of trade execution data is now viewed, almost philosophically, as the only option.

Capacity Constraints
But can it work down at the nuts-and-bolts level? Some in the audience colorfully debated whether this new ethos has become too prescriptive and cumbersome in implementation—or if instead it was inevitable, given what has come before. Either way, the session broadly agreed that the swing has become a little wild—and the session’s panel focused on how to creatively and collaboratively stay ahead of the challenges that are no longer in the offing, so much as at the doorstep.
To start with, many in the industry wait with bated breath for the January MiFID II deadline. Along with short-term chaos, panelists predicted profound shifts in market structure and client preferences; new winners and losers as a result of unbundling; and a raft of data management concerns. For many European investment managers, MiFID II-driven best execution will be “like learning a new language,” one speaker said, while healthy skepticism remains as to whether buy-side order and execution management systems (OMS and EMSs) will be capable of ingesting, storing and effectively managing the deluge of trade data coming back from their broker-dealers. “The elephant in the room”, it was argued, is a pure technology problem.
“What MiFID II asks for in terms of best ex analysis is a kind of Holy Grail,” the panelist explained, “whereas we as an industry can only work with what data is available. In the US, there is growing demand for greater study of order routing data, well beyond execution, whereas in Europe, transaction cost analysis (TCA) is still fairly nascent and at medium-sized and smaller firms, they’re only asking for rolled-up, minimum information from the broker at end-of-day. They simply don’t have the capacity to meet this yet.”

Double Trouble

Meanwhile, industry adoption of the CAT took a surprising turn in November, when initial reporting entities—exchange operators—requested a last-minute exemption that was denied by the US Securities and Exchange Commission. The exchanges cited data security concerns as the main reason for the request. But panelists also pointed to questions that cropped up about the Thesys-built reporting processor platform and mapping to its proprietary JSON messaging file format—an area that now has brokers’ close attention, and one about which FIX has already sought clarification.

While a brief delay may yet prove constructive, the larger worry, speakers said, stems from rising costs and unclear timing. A prolonged transition from legacy reporting constructs—specifically OATS [the Order Audit Trail System], electronic blue sheets and large-trader filings—to the CAT means a more expensive and complex internal systems migration that was already tough, given its lower minimum thresholds for required reporting dealers, and its coverage of equity options. For many firms this could potentially augur an incomplete phase-out, or “dual supporting, dual reporting,” as one panelist put it. The danger is that data accuracy and rapidity of reporting to the CAT will suffer as a result, and for the industry, it can lead to a vicious cycle and, ultimately, a breakdown of the project.

“The SEC wants to switch over to the CAT and view reporting error rates on an industry level,” he continued. “So the problem becomes: if one or two firms remain well above that error rate, that throws the whole process off. The cost even beyond CAT-related development—of simply maintaining [OATS]—is a major burden.”

Data Capture, Tech Transference

So, how to cope? First, multiple panelists said savvy planning— especially at the data infrastructure level—can pay major dividends. By prioritizing data traceability and building out data governance, best practices and controls into a ground-up solution for MiFID II, new tools and infrastructural strength are already in place and readily transferrable to the CAT, they said. Part of this, one panelist admitted, was taking a page from the regulators’ book: capture as much data as you can at as many trade lifecycle points as possible. Favor too much over too little. “With that already done, you can worry more about the interpretation of the rules surrounding a legal entity or trade within a certain jurisdiction, and about how to satisfy that requirement,” said the executive. “It’s still challenging, but easier.”

The same discipline goes for solving the messaging impasse around CAT. As one attendee admitted, “even the FIX membership is currently split” as to the best path forward for migrating from OATS. For some, that can mean favoring a “path of least resistance” today, while still trying to leave the question open about the future. Versatility, therefore, should be favored, it was argued— with one panelist pointing out that FIX and JSON need not be mutually exclusive, if handlers are properly implemented. Bringing that idea from the front office back to CAT teams in ops and compliance would be critical, it was agreed.

So, too, should it be remembered that “once you get past the current [November 15] scheduling issue they’re dealing with, Thesys has actually been open and excited about some of these ideas,” the attendee argued. “If you look at the development of JSON, early on they had added fields and deleted OATS fields that made comparison impossible—given that half of the comparable data had been eliminated. This was pointed out; they reconsidered.”

The FIX Trading Community has had positive dialogue with Thesys CAT over the past month and there is discussion with regards to a FIX to CAT mapping exercise once the latest version of the technical specification is distributed to the industry. Such an exercise is very much in line with how FIX has collaborated with other regulators across the globe. Because of the broad footprint of FIX and its flexibility to respond to divergent data and linkage requirements, leveraging FIX will result in great savings both in dollars and implementation time for the industry overall so more to come on this front.

Readiness is All

As often, winning the day will require a measure of flexibility and cooperation in 2018. With so much definitional and operational uncertainty still in play, however, and an expectation that both MiFID II and the CAT have several years of growing pains to go, the session concluded that technical acumen will prove strongly influential—if not dispositive—in guiding the decisions that lay ahead.

FIX Trading Community releases Recommended Practices for Commission Unbundling as required by MiFID II

Providing definitive guidelines to assist firms with unbundling prior to January 2018

London, New York, Hong Kong, 15th November 2017: FIX Trading Community, the non-profit, industry-driven standards body at the heart of global financial trading, today releases Recommended Practices for Commission Unbundling as required by MiFID II.

MiFID II has introduced the requirement to explicitly separate commissions into their component parts (e.g. execution, research) with a focus on the specific identification of the research component of the commission. In addition, MiFID II has introduced the concept of a research-payment account (RPA). Previously, commission payments were generally handled in the background by Commission Sharing Agreements (CSA).

Over the past two years, FIX members have debated and discussed the European Securities and Markets Authority (ESMA) terminology and responded to updates across a number of different MiFID Working Groups. The FIX MiFID Commission Unbundling Working Group, in conjunction with the FIX Global Post Trade Working Group, has worked on producing a document that provides guidelines for pre-trade and post-trade representation of commission components for all asset classes, using the FIX Protocol.

Dave Tolman, Principal Services Analyst, Itiviti, Co-chair FIX Global Post Trade Working Group, noted, “The FIX Global Post Trade Working Group has worked for a number of years to facilitate industry-wide implementation of post-trade processing via FIX between buy-side and sell-side firms. This is a natural progression to address the MiFID II requirements that will affect many global firms.”

Rebecca Healey, Head of EMEA Market Structure and Strategy, Liquidnet, Co-Chair FIX EMEA Regulatory Subcommittee, commented, “It was important to have consensus across membership, as FIX has done across all MiFID Working Groups, with commission unbundling. With the assistance of the buy-side, sell-side and vendors we have been able to produce these specific guidelines to help the market address this requirement.”

David Pearson, Head of Post-trade, Fidessa, Co-chair FIX Global Post Trade Working Group, said, “After a detailed analysis of the regulations, and extensive industry consultation, the FIX Working Group recognised that the current guidelines and message specification needed to be enhanced to allow the post-trade process to handle multiple commissions on the allocation instruction and confirmation messages. This document provides important guidelines to assist firms ahead of the January 2018 deadline.”

The Recommended Practices document can be found here.