The MiFID 2/MIFIR Primer
- The reporting burden on regulated firms from MIFIR will be greater than for MiFID and EMIR put together.
The MiFID 2 (the Directive) covers a large number of topics, including the requirements applying to approved reporting mechanisms and other authorised bodies supporting the legislation. MIFIR (the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term) covers, among other things, the detailed reporting obligations of individual firms. Even before all of the standards have been finalised and approved, it is clear that the reporting burden on regulated firms from MIFIR will be greater than for MiFID and EMIR put together.
This is due to the aggregated scope of reportable products (including FX derivatives, cash securities trades, Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term), additional transaction types (financing transactions, primary issues, results of option exercise) and the greatly expanded scope of information required (national identification of retail clients, identity of the person or algorithm executing the trade). The overlap between the fields envisaged for MIFIR and those already reported for EMIR purposes is not so great as we might have hoped, and the two requirements will continue in parallel (MIFIR will not replace the EMIR requirement).
What are financial firms to do about this imminent wave of regulation if they are not to turn over their entire IT department to satisfy the reporting requirements? The only approach which appears viable for small-to-medium-sized firms is to outsource the management of all of your transaction data and rely on a third-party to assess reportability under the various regimes, to format and route your data as appropriate and to report back to you with confirmation of what has been reported on your behalf. This last step is critical in order to support your internal assurance processes (as unfortunately you will retain ultimately responsibility under most of the regimes).
If you have an alternative vision for how these future requirements might be addressed, or any other comments on the above, I would be very interested to hear your thoughts.
The MiFID 2 (the Directive) covers a large number of topics, including the requirements applying to approved reporting mechanisms and other authorised bodies supporting the legislation. MIFIR (the Regulation Regulation Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Like any other industry with a high net worth, the financial services industry is tightly regulated to help curb illicit behavior and manipulation. Each asset class has its own set of protocols put in place to combat their respective forms of abuse.In the foreign exchange space, regulation is assumed by authorities in multiple jurisdictions, though ultimately lacking a binding international order. Who are the Industry’s Leading Regulators?Regulators such as the UK’s Financial Conduct Authority ( Read this Term) covers, among other things, the detailed reporting obligations of individual firms. Even before all of the standards have been finalised and approved, it is clear that the reporting burden on regulated firms from MIFIR will be greater than for MiFID and EMIR put together.
This is due to the aggregated scope of reportable products (including FX derivatives, cash securities trades, Swaps Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Swaps can be defined as a derivate contact composed of two parties that exchange to cash flow between two separate financial instruments.They are generally divided into two categories. This includes contingent claims (options) and forward claims, where forward contracts, swaps, and exchange-traded funds (ETFs) are exchanged. Commodity price, equity price, interest rate, and foreign exchange rate are common variables used as one of the cash flows in swaps upon initiation. Different Types of Swaps Read this Term), additional transaction types (financing transactions, primary issues, results of option exercise) and the greatly expanded scope of information required (national identification of retail clients, identity of the person or algorithm executing the trade). The overlap between the fields envisaged for MIFIR and those already reported for EMIR purposes is not so great as we might have hoped, and the two requirements will continue in parallel (MIFIR will not replace the EMIR requirement).
What are financial firms to do about this imminent wave of regulation if they are not to turn over their entire IT department to satisfy the reporting requirements? The only approach which appears viable for small-to-medium-sized firms is to outsource the management of all of your transaction data and rely on a third-party to assess reportability under the various regimes, to format and route your data as appropriate and to report back to you with confirmation of what has been reported on your behalf. This last step is critical in order to support your internal assurance processes (as unfortunately you will retain ultimately responsibility under most of the regimes).
If you have an alternative vision for how these future requirements might be addressed, or any other comments on the above, I would be very interested to hear your thoughts.