Mifid II: Drowning in data

The amount of data required pre- and post-trade under Mifid II is a ‘massive headache’ for firms, writes Hayley McDowell…

Data management is a serious problem for asset managers ahead of Mifid II.

In a straw poll of industry participants conducted by The TRADE, there was broad agreement that data reporting and management will be among the most problematic areas for buy-siders implementing Mifid II compliant systems.

It comes after a recent survey conducted by Linedata, which concluded that data management was a concern for almost 30% of financial businesses.

The report stated that issues such as best execution and managing customer data have been granted increasing prominence by regulators in recent years.

Nick Fienberg from Alpha FMC explained the challenge for the industry will be in actually proving that practices across the functional chain are aligned with investors’ interests.

He says: “With transparency requirements inevitably come onerous demands on data capture, storage, and ultimately breadth and accuracy of reporting.

“Reporting requirements could extend to details of execution venues used by order type (market, limit orders), over a 12 month rolling period by client type, and order breakdowns which capture the reasons behind the trading style, including price, cost, speed, likelihood of execution.

“Order level data may well need to include an identifier for the person who made the investment decision, and the person who executed it.”

Fienberg’s thoughts were echoed by founder of fixed income platform intermediary Axe Trading Dinos Daborn.

He explains: “The amount of data required and extra information required pre and post-trade under Mifid II is a massive headache for firms.

“Data and the ability to report the information is one of the reasons behind the delay.”

Daborn’s colleague, Mark Watters, says: “There’s between 50 and 65 new pieces of pre-trade information required when Mifid II comes into play. Firms need to know where the best price is across multiple platforms and execution venues.

“Data is not the only challenge. Best execution, particularly in fixed income, is also a challenge. It will be difficult to track the steps taken to prove your firm attempted to achieve best execution.

“In future, execution desks and compliance departments will need those facts at their fingertips to satisfy regulators.”

Beyond barriers

Carl James, global head of fixed income at Pictet Asset Management, acknowledges that data is a key regulatory change under Mifid II, stating that data is going to play a “crucial role in understanding” firms’ trading strategies.

He explains: “We’ve seen this with the equities market and I expect we will see it again in the fixed income market. It’s a big component and behavioural and technological changes will follow.”

Earlier this month, Anne Plested, who heads up Fidessa’s regulation change programme, wrote in a blog that regulation could perhaps increase data costs for asset managers.

“… ESMA goes several steps beyond pre- and post-trade data unbundling, including separation by asset class, by instrument, by sector and other criteria subject to customer demand,” she said.

“Asset class alone could dramatically increase the number of products to be offered by exchanges. Splitting out all these data packages, and the resultant administrative overhead, will likely increase costs rather than reduce them.”

Implementing new systems will play a big role in ensuring firms are compliant with Mifid II. Alpha FMC’s Fienberg stressed the importance of effectively-deployed technology solutions.

“[They] will be critical in adhering to the major provisions of Mifid II, whether through onerous new requirements to assure best execution, data-heavy reporting provisions which require efficient data capture and management solutions, or workflow tools that monitor and enforce tighter operational procedures.

“All of the major software vendors are continuing to make significant Mifid II-related investment in their products during the course of 2016, which we expect asset managers are already fully aware of; and asset managers should already have a well-formed plan – subject to further technical specifications – around the platform enhancements required for Mifid compliance over the course of 2016 and 2017.”