The introduction of near real-time trade reporting set to be extended beyond equity markets as part of MiFID II will broaden the visibility of trading activity in listed and OTC instruments – but how can market participants bolster post-trade capabilities and prepare for the 2018 deadline?
With commodities, fixed income and FX trading activity set to be included in reporting requirements coming into force next year, market participants must focus on delivering greater automation in their post-trade capabilities, while developing multi-asset functionality to account for the new breadth of the new rules.
Adding to the challenge, details of all trades in eligible financial instruments (both equity and non-equity) need to be published to Approved Publication Arrangements (APAs) in as close to real time as possible. In practice, for some instruments this means no later than 1 minute after the trade. Stricter accuracy requirements designed to prevent over and under reporting is also on the agenda, as regulators look to clamp down on an if in doubt, report mentality.
Yet, many financial institutions continue to rely on manual processes built on siloed IT operations that segregate middle and back office functions between asset classes. It comes as little surprise therefore, that this move is posing significant challenges for market participants, a point illustrated in a recent survey conducted by WBR Research. The survey, which polled 150 equity traders in Europe, found 37% of respondents cited post-trading issues as the factor expected to cause the biggest impact of MiFID II reforms.
As such, demand for centralised solutions which can process input from multiple front-office Order Management Systems, across asset classes continues to rise. The logic around the need to create holistic view of trading activity extends to other important post-trade functions including transaction reporting, best execution and market abuse monitoring.
A tempting solution for the buy-side may be to delegate authority for trade reporting to their brokers in some instances. But in this scenario, these firms will still retain accountability for ensuring reporting is done correctly. Consequently more buy-side firms are likely to handle their own trade reporting – and as a result – will need to upgrade post-trade functionality to meet the rules.
Ultimately, the need for a step change in post-trade connectivity and automation looms on the horizon. At the user level, a unified, interface will be needed which accurately reports trade details, shows the status of all reporting – and allows interaction to cancel/modify reports and handle APA rejections.
Richard Bentley is Chief Product Officer at Ullink, global provider of market leading multi-asset trading technology and infrastructure for buy-side and sell-side market participants.