Managing MiFID II Expectations: How implementing the right EMS matters
As our PTP enabled (Precision Time Protocol) enabled clocks now accurately tell us down to the millisecond, MiFID II is less than a month away. There have already been a plethora of articles and white papers on the new ESMA regulations and their implications, as the lawyers and the consultants have clearly been having a field day, but now, as we come down to the wire, what are the considerations and solutions that the buy side can put in place to ensure MiFID II compliance and industry best practice?
In this blog, I will summarise the most important themes that have emerged in the ‘field’ and how the adoption of an EMS with an agile and responsive approach to development and integration can solve several headaches.
Given the breadth and depth of change that MiFID II brings with it, there is a widespread expectation that the road to 100% compliance will not magically be achievable by all institutional buy side firms on Day One. That being said, MiFID II is being taken very seriously across the board and the buy side has accepted its obligation to demonstrate a credible process and plan of action to become fully compliant.
The opportunity to call upon on a proven SaaS deployed EMS provider with multiple live clients in all of the in-scope instrument classes including the latest to electronify — Fixed Income, is a major, almost unique advantage and a source of genuine reassurance.
The buy side should be wary of flashy presentations from an entirely canned demo environment wherein there is no need to connect to the internet for live market data or order status updates.
At TS, what you see is what you get as we demonstrate a live, UAT replica of our production environment. Post meeting, we routinely invite our clients and prospects to take up the offer of their own UAT install. From this step, a SaaS architecture and a globally distributed data centre infrastructure of pre-certified connectivity (including the new MiFID II fields) to a wide network of broker dealers, liquidity providers and execution venues allows for an implementation ranging from a few weeks to no more than a few months.
Best Execution beyond TCA
With MiFID II’s unbundling and expanded best execution mandate across asset classes, the buy side trader recognises that there is going to be a greater spotlight on the performance of the dealing desk, increasing demand for analytics to inform the execution process and support the feedback loop to the portfolio manager. Faced with an unparalleled range of execution choices, including the traditional broker routes and the dawn of new block liquidity venues such as CBOE LIS and Turquoise Plato Block Discovery, accessing configurable exception-based alerting mechanisms will assist the information overloaded trader. Flexible, configurable, multi benchmark, pre trade and in trade tools will enable best execution to be a continuous, monitoring process across the order life cycle and validate their performance. Demand for genuine broker neutrality to avoid any concerns of inducement or conflict of interest coupled with an out-of-the-box offering that already covers FX and Fixed Income is becoming the new norm. On the post trade TCA front, the buy side is looking for service providers that can generate RTS 28 Top 5 venue reports; effectively the top 5 executing brokers in the Listed world and the top 5 venues for FX and Fixed Income instruments.
Along with Reporting, this topic is probably the one that has been the cause for the most concern and hence system review for the buy side in 2017. MiFID II dictates a 7 year audit trail of all order and execution related activity and has been a driver for historically more voice-oriented dealing desks to make the move to electronic dealing. Once again, as a SaaS-based provider since inception 18 years ago, and through the maintenance of our own ‘street side’ FIX connectivity layer to the broker dealers, liquidity providers and execution venues, TS has always captured and stored all of our clients’ order and execution data and been able to make it readily available and auditable from our data centres in all 9 localities.
Connectivity has always been at the heart of an EMS’ value proposition and this is no different when it comes to the new reporting obligations under MiFID II. Over the course of the past 18 months as the buy side has figured out specifically what its obligations are going to be there has been an expanding interest in the EMS’ ability to deliver Trade Reporting (T+0) and to a lesser extent, Transaction Reporting (T+1) solutions. Having certified connectivity with a number of APAs (Approved Publication Arrangement) and ARMs (Approved Reporting Mechanism), TS will be able to leverage our hosted, one to many networks dubbed TS FastPass to activate buy side firms quickly and efficiently.
Automation and Algorithmic Trading
The ability of an EMS to offer trade automation and algorithmic trading access, via broker dealers’ algorithmic trading suites and natively, is not a new phenomenon but under MiFID II, the buy side’s use of the two, complementarily and concurrently, will increase. Given the heightened focus on achieving best execution and the ever-growing range of execution choices and venues, the need to automate dealing in typically the smaller, easy to execute orders to allow more attention to be dedicated to the larger, blocks will unavoidably materialise. In the context of unbundling and the ‘fair’ allocation of business across the broker list, the adoption of the Algowheel is going to proliferate. Here, as the buy side takes more and more control of all of its execution processes and decision-making, the ability to administer and to maintain the Algowheel itself from a broker neutral, technology provider portal is likely to become the optimal solution. There is a commercial driver here, too, since many of the leading investment banks are prohibiting the payment of transaction fees for listed execution tools under MiFID II.
Across the board, TS has anticipated and planned for the second coming of MIFID before it was a household name. With a steadfast focus on ease of implementation, execution efficiency and trader productivity TS has always been driven by the principle that technology is not something you work with, but something that works for you. As the milestones of MiFID II implementation set in, ask yourself– is your EMS up to the task?
TradeSmart EMS helps some of the brightest and forward-thinking brokers, dealers, buy-sides, and OMS’ comply and thrive in a new data- driven world.
The Dollar Milkshake Theory – Stress Testing the Potential Impact of a Sovereign Debt and Currency Crisis
Stress Tests play an important role in improving financial stability by enhancing market discipline and transparency. Here we consider the third example of these stresses based on current market conditions and show how the risk factors can be generated along with their relevant shock examples.
Since the start of the war in Ukraine, Western nations have imposed sanctions on many Russian individuals, businesses and state-run enterprises. Stress Tests play an important role in improving financial stability by enhancing market discipline and transparency.
Stress Tests play an important role in improving financial stability by enhancing market discipline and transparency. Clients leverage TS Imagine’s flexible and powerful risk engine to stress test a variety of specific scenarios. With Americans set to commence voting early next week, markets around the globe are watching carefully. Will the midterms disrupt the Democratic legislative agenda or tip in their favor? We ran two scenarios through our stress-testing engine, gaming the potential market impacts. Please note that these are hypothetical shocks and are not a prediction of any forthcoming events.