MiFID II

On 3 January 2018, Europe will see the update to the Markets in Financial Instrument Directive (MiFID II) and the accompanying Regulation (MiFIR) come into force. Focusing on core principles of the creation of fairer, safer and more efficient markets, this arguably is the broadest piece of financial industry legislation ever and has the potential to significantly change market structures. Now is the time to be selecting and integrating systematic solutions to prepare for this vast regulatory change.

Bloomberg is uniquely positioned to help clients navigate the regulatory maze and transition into the MiFID II environment. As a partner to both the buy-side and the sell-side, we have built upon our current solutions for data, analytics, order management, reporting and trading platforms to provide a holistic suite of solutions from front to back-office that integrate seamlessly and also work independently

Bloomberg offers solutions across the entire MIFID II spectrum, and these capabilities are seamlessly integrated with Bloomberg’s order management systems TOMS, SSEOMS and AIM.

You can also visit MIFI <GO> on the Terminal to receive the latest updates on the regulation roll out and Bloomberg’s MiFID II solutions.

PRE-TRADE

Pre- & post-trade transparency
Firms will need to publicly report off-venue Actionable Indications of Interest (AIoIs or firm prices) and executed prices. ‘Off venue’ prices are required to be published through an Approved Publication Arrangement (APA), whereas ‘on venue’ reporting of prices and trades will be the obligation of that trading venue. Bloomberg’s APA expects to receive regulatory approval to meet MiFID II requirements.

Data
ESMA’s final draft Regulatory Technical Standards (RTS) indicate the need to consume a wide array of data to determine MiFID II obligations. For example just with respect to transparency rules, financial products will need to be identified using ISINs and will categorised as liquid or illiquid on instrument by instrument approach (IBIA) or by a classes of financial instrument approach (COFIA). Certain products will be subject to trading obligations. Trade size thresholds (Size Specific to Instrument (SSTI) and Large in Scale (LIS)) will be relevant. Investment firms will need to ensure they register a Legal Entity Identifier (LEI) and will have to determine and potentially register themselves as Systematic Internalisers (SI). Bloomberg will consolidate all sources of such data to assist clients to determine and meet their MiFID II and MiFIR requirements.

Furthermore Bloomberg will consume newly available sources of transparency data and create composites and analytics that clients might use in their investment and execution decision making process.

Research
MiFID II outlines rules for provision and receipt of investment research that should be unbundled from execution. Bloomberg is helping the buy side implement solutions on the provision and receipt of investment research stemming from the implications of MiFID II.

Bloomberg solutions include:

• Granular entitlement systems
• Consumption analytics
• Evaluation and broker vote tools
• Budgeting
• Deep research library and research marketplace

Order management systems
In order to operate efficiently in this new environment, firms will have to ensure their workflows are capable of providing the necessary data for all the reporting requirements they will have to fulfill, as well as for surveillance and reconstruction of trades on demand from their regulator.

• The need to provide pre and post-trade transparency reporting
• UTC clock synchronization and time stamping to the millisecond
• Pre- and post-trade compliance checks and surveillance
• Transaction reporting to the regulator
• Best execution reporting
• Record keeping and trade reconstruction

Bloomberg’s Order Management systems, Asset and Investment Manager (AIM) for the buy-side and  Trade Order Management Solutions (TOMS) for the sell-side have proven track records of supporting firms to meet regulatory mandates.

EXECUTION

Transaction Reporting
Trades on all financial instruments will need to be reported to the National Competent Authority (NCA) to their market abuse and surveillance functions. Reports require 65 fields of economic terms and static data. Bloomberg currently has an Approved Reporting Mechanism (ARM) which has been extended to meet MiFID II requirements.

Trading Venues
MiFID II defines a number of trading venue types: Regulated Markets (RM), Multi-lateral Trade Facilities (MTF) and Organised Trade Facilities (OTF). Current order book, multi RFQ and voice trading protocols will need to be reviewed and potentially amended post-MiFID II. Bloomberg has secured an MTF licence for swaps and has been approved to extend the product suite for all MiFID II products.

POST-TRADE

Best Execution
Market participants must take all sufficient steps to ensure and demonstrate best execution for their clients. Trading venues and Systematic Internalisers will be required to periodically publish reports relating to the quality of execution for individual financial instruments. Bloomberg has expanded the Transaction Cost Analysis (BTCA) service to assist participants in demonstrating best execution.

Record Keeping, Trade Reconstruction & Surveillance
Records must be kept of all services, activities and transactions undertaken by investment firms for a minimum of five years in a readily available manner that cannot be modified or deleted. Records include all email, instant messaging, telephone conversations and documents even if they do not lead to transactions.

In addition to the responsibilities under the Market Abuse Regulation of 2016  firms will be required to increase monitoring and surveillance of market activity for prohibited or restricted financial instruments..

Bloomberg Vault is being expanded to assist clients in meeting their record keeping, trade reconstruction and surveillance regulatory requirements.

Sweeping overseas regulations like MiFID II often have implications that require firms across the world to adapt their current practices. Aspects of MiFID II that will apply to non-EU firms–research unbundling, changing commission rules, order execution obligations and compliance requests, to name a few, could come as a surprise for many. Bloomberg understands the implications of global regulation and helps all firms impacted by MiFID II take a proactive approach to being compliant.

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