Inconsistent and inaccurate post-trade reporting in Europe has been the bane of buy- and sell-siders’ lives since the introduction of MiFID in November 2007. Trying to piece together an accurate view of trading activity in Europe is almost impossible, causing difficulties for portfolio managers trying to determine volume and price limits for an order, and for traders using transaction cost analysis tools to measure execution performance.
One of the cornerstones of MiFID was to bring competition to national exchanges, but the resulting increase in multilateral trading facilities (MTFs), dark pools, broker crossing engines, new order types and post-trade reporting venues posed the new challenge of fragmentation. Furthermore, MiFID’s guidelines on the circumstances under which trade reporting may be delayed were interpretated inconsistently by sell-side firms.
As well as allowing a more precise view of market activity on which to base execution decisions, consistent post-trade data may also aid the performance of algorithms, many of which are still only fuelled by primary exchange market data. Algorithms fed by data from a more complete universe would deliver better executions across the full range of trading venues.
Despite the pressing need for a solution, whether by market forces or regulation, progress has so far been limited.
In June this year, UK regulator the Financial Services Authority released Market Watch 32, a paper that tried to promote convergence between the reporting practices of brokers. This included guidance on how to report agency trades, risk trades, when delays were appropriate and how to deal with errors.
“There has been an improvement since Market Watch 32, but whether everyone is following suit is an open question,” says Guy Sears, director of wholesale at trade body the Investment Management Association.
MTFs have also joined together to form the common symbology working group. By using the same stock symbols, post-trade data will be easier to collate across venues, but unless all market centres are involved in such an initiative, disparities will still exist.
Buy- and sell-side firms affected by the lack of post-trade data consistency have expressed their disappointment that action has not been taken and agree that regulatory intervention may be on the cards.
“I have to admit that once again the industry seems lethargic, not doing much to get its head around the issue and clarify what is wanted, and most importantly, doesn’t seem willing to put its hand in its pocket to pay for it,” says Richard Balarkas, CEO of agency broker Instinet Europe.
According to Sears a common understanding is still required on what trades are reported at what time, the way erroneous trades are reporting and common symbology.
“Even if there is agreement on how to proceed, we will need a regulatory solution to ensure market solutions are enforced across Europe,” adds Sears. “Someone will need to ensure compliance, which won’t be possible under the current regime.”
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