With all the delays, media commentary and conferences it would be easy to forget that the rules proposed by MiFID II still need to be implemented by January 2018, yet even now there is still a lack of clarity about the implementation of several requirements and a lack of strategy to tackle MiFID II compliance by a good section of market participants. Part of the reason for this is the inability to determine what would be considered “good enough” by the regulators, and another part can be attributed to the fact that some of the market structures necessary for compliance have not yet been set up. Yet this legislation will come into force and the market will have to comply.
The first deadline – for timestamping – arrives in January, and since timestamping is something that is already commonplace with several trading strategies, extending this to the wider market is not proving overly problematic. However, with just over a year to go before the final deadline, what is the current state of MiFID II readiness?
From discussions with our clients, they seem to be at different stages in their MiFID 2 readiness. We have observed that some have started implementation of specific solutions, others have reserved budgets and are looking for ideas from peer groups to start implementation, while a section of the market is still far behind on their preparations. Across the different client segments we have seen market operators moving first – probably due to the highly regulated nature of their business or because some are launching MiFID II compliance solutions such as reporting facilities. Firms with global operations seem to be considering solutions that can be leveraged across different regulatory environments – like Europe and the US.
On the other hand, we have seen few clients who believe that solutions needed for MiFID II compliance will be implemented outside their businesses or just be provided to them. These firms, often focused on a specific asset class or a specific geography usually rely on their brokers or partners to provide technology for them but with MiFID II, responsibility for compliance is firmly put at the feet of the firm, not the supplier. All firms now have a responsibility to ensure they are compliant; it’s no longer possible to rely on a supplier to make sure your systems are compliant. Technology solutions can come from brokers and vendors, but there needs to be engagement from the end user, and careful consideration of the implications as responsibility will remain in-house.
While many are understandably focusing on areas of the regulation that are of most importance to their businesses, the need to comply with all relevant aspects of the regulation is fast becoming more pressing. For example, investment banks must still look at best execution rules and the buy side still needs to focus on how to pay for research.
Anecdotal evidence points to a temptation to wait and see what the rest of the market do first, and also what ESMA regards as being compliant. Consultations are being released regularly, with those for trading obligations for derivatives and for the scope of the consolidated tape the latest to be released, and this may lend some justification to a “wait and see” strategy. However, with little time left to make the required changes there is a real danger that it will be left too late.
One thing is certain. The 2018 deadline is close, and if anecdotal evidence is even partially correct, many have a long way to go to be compliant. The solutions required are not quick fixes, but rather will impact many aspects of the trading work flows across the industry and across a wide set of asset classes. If fines – or worse – are to be avoided then participants need to move to the implementation stage as soon as possible. Waiting is not an option anymore.