Countdown to MiFID II: What Comes After Compliance? (Part III)

By Jeremy Taylor, Head of Capital Markets Business Consulting, EPAM UK

Aligning Trade Management & Post-Trade Processing

Now that we’ve covered the first two stages of the trade lifecycle in Part I and Part II of this blog series, we’re ready to discuss what to focus on beyond compliance in stages three and four: trade management and post-trade processing.

Here’s what banks should be focused on in these final stages…

Timely, Front-to-Back Reporting Capabilities

One of the key pillars of MiFID II is trade and transaction reporting, which mandates that detailed information pertaining to client orders needs to be captured and retained. This constitutes another data management exercise requiring clean and timely data to be collected both internally and externally from all relevant sources allowing for difference in order types and flows.

To design a solution that provides both the level of control and reporting standards for MiFID II compliance, firms must analyze and map a detailed sequencing of events and processing steps. Given the existing complexity of many firms’ current system architecture, this will be a complex challenge. As an alternative, centralizing and potentially outsourcing this to a service provider should be considered.

Despite the recent trade and transaction reporting recently mandated by EMIR, MiFID II sets new rules that increase transparency and instrument coverage, and shrink reporting deadlines. Firms need to take a holistic approach that encompasses all use cases and then develop a reporting service that automates the data gathering, analysis, and reporting.

In fact since reporting is, by definition, downstream from many of the pre-trade and execution processes, firms need to ensure that the technology components built to comply with MiFID II are designed to provide a front-to-back service that is normalized across instrument type, order type, counterparty type, and venue. Such diversity and complexity requires firms to install business-rules engines to build the necessary workflow logic. Firms will also need flexibility to make changes without expensive system adjustments.

This is the time when investment firms may need to re-think and re-implement their smart data solutions by using cloud technologies. It is important to ensure that database solutions used for trade data analytics are ready to be used in cloud on a ‘serverless’ architecture. Big Data as a Service, if correctly used, may provide a simpler and more cost-effective option for deploying Hadoop as well as Spark, Kafka, Cassandra, and other big data frameworks.

MiFID II: A True Game Changer for Capital Markets

MiFID II is a very significant piece of regulation that builds on and extends some of the rules introduced by MiFID in 2007, which brought about fundamental structure and mechanics changes to the equity market. MiFID II will have a similar impact on a much wider range of asset classes and, as such, presents both a threat and an opportunity for financial firms.  It should be seen as a game changer.

Fortunately for those impacted by MiFID II, there is a new generation of technology and RegTech firms available to capitalize on the opportunities and changes that will result. It is with this in mind that firms need to look past the moment they reach compliance and into what comes after January 3, 2018.