The Committee of European Securities Regulators (CESR), the body tasked with harmonising regulation across Europe, has set out its plans to reduce the cost and complexity of using post-trade data.
The proposals are part of the supplementary technical advice CESR submitted to the European Commission (EC) as part of the EC's review of MiFID, which also addresses the standardisation and platform trading of OTC derivatives.
In its initial recommendations to the EC, CESR called for the creation of a regulatory regime for broker crossing networks and a mandated consolidated tape for European trade data. Draft legislation, dubbed MiFID II, is expected to be published in January 2011.
Last week, CESR suggested two options in response to the increased cost to market participants of processing multiple sources of non-standard data following the growth of liquidity fragmentation facilitated by MiFID since 2007. In the first, any data to be sourced from registered markets, multilateral trading facilities and approved publication arrangements in post-trade records would be standardised, but the protocol used to provide the data could be proprietary. In the second, preferred by CESR, the standards and the protocol would be prescribed, the latter being non-proprietary and open.
CESR says that ISO standards should be applied to reference data fields for instrument identification, price notation, unit price, day of trade, venue identification and time of trade. Quantity should be identified simply in number of units. It also suggested specific flags that should be used to identify types of trade, including benchmark trades, agency crosses, give-up/give-in trades, dark trades and negotiated trades. CESR added that transaction identifiers should be used to help identify cancelled or amended trades and to facilitate data consolidation. MiFID II should also clarify the requirements for publishing transactions not made on a registered market or multilateral trading facility.
CESR recommended that the new European Securities and Markets Authority (ESMA) be given the power to determine which derivatives should be traded on “organised trading venues” and the proportion of business that should be carried out on venues rather than OTC. It also called for ESMA to be able to publish targets relating to – and take action to ensure – compliance. The Committee also noted that further work may be required to define and qualify trading venues as organised trading venues. CESR will transform into ESMA in January 2011, taking on additional decision making powers to support its ability to create a level playing field of pan-European regulation.
Without setting exact levels that should be reached with regards to standardisation and trading of OTC derivatives on organised venues, CESR proposed that ESMA should develop and set appropriate targets, deadlines and deliverables for legal, process and product standardisation per asset class, in consultation with the industry, and be assigned the role of monitoring progress. CESR said this should be supported by the involvement of European regulators and ESMA with international bodies to ensure a consistent approach is taken globally.