The original Mifid directive covered pre and post trade requirements for shares traded on regulated markets, but new regulations will go much further. Under the Mifid review, the regulatory scope and the onus on trade reporting will increase. Equity instruments including shares, exchange-traded funds (ETF), certificates and depositary receipts will be covered as well as non-equity instruments – structured finance products, bonds, derivatives and tradable emissions allowances. The transparency requirements will fall on trading in regulated markets and through multilateral trading facilities (MTF) and organised trading facilities (OTF). The directive will force venues to make public price and depth of trading activity at that price for quotes given by the venue.
Market actors will be required to ensure that regulated market, MTF and OTF post trade data is made anonymously available to the market on a “reasonable commercial basis.”
Trade reports will have to be made via approved publication providers and intertrade, a consolidated tape will give a constant stream of price and data volume on each financial instrument.
REGULATIONS IN PRACTICE
Richard Baker is chief executive of Cleartrade Exchange, a global electronic OTC derivatives exchange, trading iron ore, steel, fertilisers and freight. Though measures have been costly to implement, Baker welcomes the changing regulatory environment, saying that it has acted as a catalyst for change. “Most of these regulations will not come into force until 2013-2015, but we started down the road to compliance about two years ago – designing the architecture of the exchange to be future proofed as regulations shift,” says Baker. Being able to see the full lifecycle of the trade helps to understand volumes being traded and the bigger picture. Pre-trade, all trades will be required to have an ID, which is then reported for the life of the trade. Post trade, the transaction will be given a clearing ID which should match up to the initial ID. As part of the regulations, data is recorded in trade repositories. Though this is done for reasons of regulatory compliance, it can then be used by exchanges to analyse the efficiency of their systems and also to offer more to clients: “We have built a web interface into our data repository which the chief financial officer of a client can connect to. It gives a greater level of access and visibility. Overall, we see this as a value add to the system,” says Baker
The fine print of the regulations may change before they are implemented, but those that will fall under its remit should plan ahead – thinking of the entirety of their IT system and its ability to adapt to a constantly changing regulatory environment. If done well, compliance can aid your competitiveness rather than hinder it.