MiFID in Europe and Reg NMS in the US may prompt a 900% increase in the amount of market data being published by 2012, according to a study by research and advisory firm TowerGroup.
The report, called “Preparing for the Data Flood: Ramifications of Reg NMS and MiFID,” addresses how Reg NMS and MiFID will create more sources of data and drive a greater volume of quote data from each of these sources. The research also analyses the areas where market participants will have to improve their market data infrastructure and applications.
“Discussion in the media has focused on the fact that these regulations mandate best execution, which misses the bigger picture,” says Tom Price, senior analyst in the securities and capital markets practice at TowerGroup and author of the research. “The ramifications may not be felt immediately, but once Reg NMS and MiFID are final, they will have forever changed the way financial services firms treat data.”
MiFID and Reg NMS will require institutions and trading venues to store large amounts of market data, even as the volume of trade and quote data continues to grow, says TowerGroup. As a result, the firm believes these regulations will be responsible for creating more sources of market data, as well as a big surge in the amount of data published by 2012.
Regulatory compliance is expensive, says TowerGroup, but it believes the true challenge will lie in determining where to spend, as global market participants juggle the requirements of bandwidth, capacity, latency, and subsequent storage to support the expected flood of market data.
Trade reconstitution will become crucial evidence in proving best execution, the firm says, and will require gathering and storing every published quote at the time of execution along with any other data points associated with the trade.
Except for some regional differences between Reg NMS and MiFID, TowerGroup believes institutions can achieve compliance through an integrated strategy that encompasses both directives. It says the success of such a strategy depends on combining consistent policies and procedures with improved infrastructure.
“Regulatory compliance will pave the way for firms to completely automate the trading process,” says Price. “Once all the players have done so, the winner in the hunt for liquidity will be whoever can process the data the fastest.”