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FIX Industry Panel: Tech Versatility Must Rise with MiFID II, CAT’s Wild Arrival

Traders Magazine Online News, December 11, 2017

Tim Healy

This winter’s regional FIX Trading Community briefing, hosted by Morgan Stanley in New York, brought out veteran technology experts and raised fresh questions as the industry stares down twin-barreled trade reporting mandates on both sides of the Atlantic—with MiFID II’s imminent January 3, 2018 go-live date, and deepening drama behind a missed November 15milepost for the US Consolidated Audit Trail, or CAT.

Much of the FIX agenda in 2017 has faced next-generation questions—from retrofitting the standard for cybersecurity and crypto-currencies, to facilitating better pre-trade price transparency and deeper post-trade automation. But a new wave of old-fashioned trade reporting remains front and center. [IMGCAP(1)]

That level of attention is owed to the breadth of technical requirements and predicted globalization of MiFID II; it has also played out over the circuitous history and proposal process of the CAT. Taken together, though, they represent a mutual, aggressive aspiration among regulators. As one panelist put it, “the pendulum has swung completely in the other direction” regarding trade data — whether to address the perception that traditionally-bundled research and execution fees have run amok in Europe, or improve from the aftermath of the flash crash of 2015, which exposed regulators’ limited capability to connect the dots across contemporary equities venues in the US. In short: expansive collection of trade execution data is now viewed, almost philosophically, as the only option.

Capacity Constraints

But can it work down at the nuts-and-bolts level? Some in the audience colorfully debated whether this new ethos has become too prescriptive and cumbersome in implementation—or if instead it was inevitable, given what has come before. Either way, the session broadly agreed that the swing has become a little wild—and the session’s panel focused on how to creatively and collaboratively stay ahead of the challenges that are no longer in the offing, so much as at the doorstep.

To start with, many in the industry wait with bated breath for the January MiFID II deadline. Along with short-term chaos, panelists predicted profound shifts in market structure and client preferences; new winners and losers as a result of unbundling; and a raft of data management concerns. For many European investment managers, MiFID II-driven best execution will be “like learning a new language,” one speaker said, while healthy skepticism remains as to whether buy-side order and execution management systems (OMS and EMSs) will be capable of ingesting, storing and effectively managing the deluge of trade data coming back from their broker-dealers. “The elephant in the room”, it was argued, is a pure technology problem.

“What MiFID II asks for in terms of best ex analysis is a kind of Holy Grail,” the panelist explained, “whereas we as an industry can only work with what data is available. In the US, there is growing demand for greater study of order routing data, well beyond execution, whereas in Europe, transaction cost analysis (TCA) is still fairly nascent and at medium-sized and smaller firms, they’re only asking for rolled-up, minimum information from the broker at end-of-day. They simply don’t have the capacity to meet this yet.”

Double Trouble

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