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

Jeremy Taylor

Head of Capital Markets Business Consulting, EPAM UK
Blog
  • Financial Services

Now that there are only four months left before the MiFID II/MiFIR legislation comes into force, most capital markets participants will be working tirelessly to ensure that they achieve day-one compliance. Because the new set of MiFID rules impose stricter regulations to protect investors, there are many implications for European investment firms and trading venues to consider. 

While the operational impact is significant, the implications for the underlying technology stack must be considered not only to achieve day one compliance, but also to ensure that – as the regulations change market dynamics – firms have the appropriate technology to support the change.

The legislation’s breadth is massive, as MiFID II touches all aspects of the trade lifecycle:

  • Pre-trade (research, pricing, market data)
  • Trade execution (trade venues, reporting, algorithms, booking)
  • Trade management (confirmation, allocation)
  • Post-trade (settlement, payment)

Changes to these integral parts of the trading lifecycle will require a much deeper level of engagement between financial advisers and banks, as well as market participants, and are set to re-draw the market landscape, shifting its center of gravity. With this enormous scope of regulatory change in mind, let’s dive into what we can expect in terms of MiFID II compliance across the entire lifecycle.

Dealing with Challenges of Pre-Trade Transparency

Here are some of the major areas where banks should be focused when it comes to pre-trade transparency…

Quick & Efficient Assessments

The regulation imposes stricter rules regarding pre-trade transparency. This requirement and the expected increase in available venues means that more investment is needed in pre-trade analytics to ensure that the huge of amount of price and instrument data required to assess price, liquidity and strategies options can be handled and acted upon quickly. This will require a new generation of analytics engines including unstructured pre-trade data analysis (from messengers – i.e. Bloomberg – Skype, emails, voice) and machine learning to train a classifier to recognize text and voice patterns.  This new generation of analytical tools needs to be coupled to big data tools to truly make sense of such immense quantities of information, which could also be possible in a cloud-based environment that leverages data as a service technology.

Complying with these new rules, which were designed to protect against disorderly markets and high order-to-trade ratios, will also require revised market-making engines to satisfy such swift stipulations. MiFID II demands pre-trade risk checks related to prices and market impact, including order value and volumes. Therefore, alerts and timely reporting of any breaches are necessary, and must be modified accordingly.

Real-Time Data Streaming

With speed and agility in mind, another important trend to consider in pre-trade analysis involves the growing technological possibilities in streaming analytics that enable real-time data analysis. In this regard, solutions built on the basis of open source engines, such as Spark Streaming and Flink, are becoming more and more popular because they leverage established big data Hadoop technologies. If used correctly, this technology stack may facilitate new opportunities for investment firms to compete for market share.

For cases where data transfer between multiple venues/sources must happen and be reported in real-time, firms can explore FIX tools and gateways to eliminate delays across systems.

Buy-Side Research Fee Sentiment Analysis & Analytics

In addition to price transparency, which aims to benefit all market participants, MiFID II also addresses another pre-trade activity – paid research. This is particularly relevant for buy-side firms – such as asset managers – the new rules regarding paid research will significantly influence changes to trade pricing and costs. Asset managers have traditionally aggregated trading and research costs into a single fee, often obtaining research from an investment bank or broker in exchange for trade carry-out. With MiFID II, asset managers must now budget separately for research and trading costs in a move known as unbundling.

ESMA is proposing ‘full’ unbundling of payment for research under which managers must either pay for research out-of-pocket or organize a separate ‘research payment account’ (RPA) for each client with its own budget paid by the client as its contribution to the manager’s overall research budget.

Asset management companies have two options: to absorb the cost of paying for external research themselves, or to pass the cost on to their investors through higher fees.

To stay competitive, investment firms should consider using sentiment analysis processes and news analytics for automated trading, which helps to quantify news relevancy and their effects. 

Hello. How Can We Help You?


Our Offices

  • Canada

    • Ottawa

      343 Preston Street,
      ON K1S 1N4, Ottawa
      Canada

      Map
    • Toronto

      5 Park Home Avenue,
      Suite 400,
      ON M2N 6L4, North York,
      Toronto
      Canada

      Map
      P: +1-416-591-4004
      F: +1-416-595-1551
    Learn more
  • Mexico

    • Guadalajara

      Periférico Sur #8110,
      Col. El Mante
      45609 Tlaquepaque, Jalisco
      Mexico

      Map
      P: +52-33-462-400-98
    Learn more
  • United States

    • Newtown, PA

      41 University Drive,
      Suite 202,
      Newtown, PA 18940
      USA

      Map
      P: +1-267-759-9000
      F: +1-267-759-8989
    • Bellevue, WA

      110 110th Ave. NE,
      Suite 310
      Bellevue, WA 98004
      USA

      Map
    • Cambridge, MA

      One Mifflin Place,
      Cambridge, MA 02138
      USA

      Map
      P: +1-267-759-9000
      F: +1-267-759-8989
    • Conshohocken, PA

      101 East 8th Ave,
      Suite 201,
      Conshohocken, PA 19428
      USA

      Map
      P: +1-484-382-1300
    • Mountain View, CA

      465 Fairchild Dr,
      Building B,
      Suite 221,
      Mountain View, CA 94043
      USA

      Map
    • New York, NY

      24 West 25th Street,
      5th Floor,
      New York, NY 10010
      USA

      Map
      P: +1-267-759-9000
      F: +1-267-759-8989
    • San Francisco, CA

      222 Kearny Street,
      Suite 308,
      San Francisco, CA 94108
      USA

      Map
    • Santa Monica, CA

      2950 31st Street,
      Suite 130,
      Santa Monica, CA 90405
      USA

      Map
    • Washington D.C.

      7901 Jones Branch Drive,
      Suite 400,
      McLean, VA 22102
      USA

      Map
    Learn more
  • Austria

    • Vienna

      Nottendorfer Gasse 11,
      1030 Wien
      Austria 

      Map
    Learn more
  • Bulgaria

    • Sofia

      69 Bulgaria Blvd.,
      Infinity Tower,
      1404 Sofia
      Bulgaria

      Map
      P: +359-700-20-273
    Learn more
  • Czech Republic

    • Prague

      City Tower building,
      Hvezdova 2b,
      Prague 4
      Czech Republic

       

      Map
      P: +420 22 888 28 23
    Learn more
  • Germany

    • Frankfurt am Main

      Franklinstrasse 56, 
      60486 Frankfurt am Main,
      Germany

      Map
      P: +49-69-31019090
    Learn more
  • Hungary

    • Budapest

      Corvin Offices I.
      Futó street 47-53,
      Budapest, H-1082
      Hungary

      Map
      P: +36-1-327-7400
    • Debrecen

      Bethlen Street 3-9,
      Debrecen, 4026
      Hungary

      Map
      P: +36-52-999-485 / 45050
    • Szeged

      Felső Tisza-Part 25,
      Szeged, 6723
      Hungary

      Map
      P: +36-62-808-013
      F: +36-62-550-655
    Learn more
  • Ireland

    • Dublin

      Alexandra House,
      The Sweepstakes,
      Ballsbridge, Dublin 4,
      D04 C7H2
      Ireland

      Map
      P: +353-(0)-1-631-9280
    Learn more
  • Netherlands

    • Delft

      Delftechpark 37j
      2628 XJ Delft
      Netherlands

      Map
      P: +31 20 241 6134
    • Schiphol

      The Base B
      Evert van de Beekstraat 104
      1118CN Schiphol
      Netherlands

      Map
      P: +31 20 241 6134
    Learn more
  • Poland

    • Gdańsk

      Grunwaldzka 472D,
      Olivia Six,
      80-309 Gdańsk
      Poland

      Map
    • Katowice

      Chorzowska Str. 148
      40-101 Katowice
      Poland

      Map
      P: +48-12-222-02-02
    • Krakow

      Opolska Str. 114
      31-323 Kraków
      Poland

      Map
      P: +48-12-222-02-02
    • Warsaw

      Al. Jana Pawła II 23,
      Atrium International,
      00-854 Warszawa
      Poland

      Map
    • Wroclaw

      Ul. Piotra Skargi 1,
      Budynek A,
      50-082 Wrocław
      Poland

      Map
    Learn more
  • Sweden

    • Göteborg

      Lilla Nygatan 2,
      411-09 Göteborg
      Sweden

      Map
      P: +46-31-146-550
    • Stockholm

      Kungsgatan 50,
      111 35, Stockholm
      Sweden

      Map
    Learn more
  • Switzerland

    • Glattpark

      Boulevard Lilienthal 2,
      8152 Glattpark (Opfikon)
      Switzerland

      Map
      P: +41-43-500-21-49
    Learn more
  • United Kingdom

    • London

      114 Middlesex Street,
      London, E1 7HY
      United Kingdom

      Map
      P: +44-203-514-0027
    • Manchester

      Tower 12,
      18-22 Bridge Street,
      Manchester, M3 3BZ
      United Kingdom

      Map
      P: +44-203-514-0027
    Learn more
  • Australia

    • Sydney

      Suite 2.14
      Level 2
      Zhen Building
      33 Lexington Drive
      Bella Vista NSW 2153

      Map
      P: +61-2-8310-8272
    Learn more
  • China

    • Guangzhou

      Unit B01, 23/F,
      Yuexiuxinduhui Building,
      No. 236, 6th Zhongshan Road,
      Yuexiu District, Guangzhou,
      China 510180

      Map
    • 广州

      中国广州市越秀区
      中山六路236号
      越秀新都会大厦中座 23楼 B01室
      邮编510180

      地图
    • Shanghai

      Room A11, 6th Floor, Block C,
      666 East Beijing Road,
      Huangpu District, Shanghai,
      China 200001

      Map
      P: +86-21-53080606 +86-21-53085450
    • 上海

      中国上海市黄浦区
      北京东路 666号
      科技京城C区 6楼 A11室
      邮编200001

      地图
      P: +86-21-53080606 +86-21-53085450
    • Shenzhen

      3/F, Block 5, Vision Shenzhen Business Park,
      9th Gaoxin South Road, 
      Shenzhen Hi-tech Industrial Park,
      Nanshan District, Shenzhen,
      Guangdong, China 518057

      Map
      P: +86-755-36899008
    • 深圳

      中国广东省深圳市
      南山区高新南九道
      威新软件园5号楼3楼
      邮编518057

      地图
      P: +86-755-36899008
    • Suzhou

      Building 12, Creative Industrial Park,
      328 Xinghu Street,
      Suzhou Industrial Park,
      Suzhou, China 215123

      Map
    • 苏州

      中国江苏省苏州市
      苏州工业园区星湖街328号
      创意产业园内12号楼
      邮编215123

      地图
    Learn more
  • Hong Kong

    • Hong Kong

      198 Wellington Street,
      17F, Central
      Hong Kong

      Map
      P: +852-5808-6018
    Learn more
  • India

    • Hyderabad

      10, 11 & 12th Floors,
      Salarpuria Sattva Knowledge City,
      Plot No. 2, Phase - 1,
      Survey No. 83/1,
      Raidurgam Village,
      Serilingampally Mandal,
      Hyderabad, Telangana - 500081
      India

      Map
      P: +91-40-39-111-700
    • Pune

      SmartWork Business Center Pvt Ltd,
      Suite 8, Level 1,
      West Wing, Nyati Unitree,
      Samrat Ashok Road,
      Yerwada, Pune - 411006,
      Maharashtra
      India

      Map
      P: +91-20-4913-6025
    Learn more
  • Singapore

    • Singapore

      5 Shenton Way
      UIC Building, #10-01,
      Singapore (068808)

      Map
      P: +65-6911-6888
    Learn more
  • United Arab Emirates

    • Dubai

      EPAM Systems FZ-LLC
      Dubai Branch,
      Building 16, Office 241,
      Dubai Internet City,
      PO Box 501929, Dubai
      United Arab Emirates

      Map
      P: +971-4-568-3569
    Learn more
  • Armenia

    • Yerevan

      15 Khorenatsi Street,
      Elite Plaza Business Center,
      0010 Yerevan
      Armenia

      Map
      P: +374-10-60-00-65
    Learn more
  • Belarus

    • Brest

      6A Masherov Avenue,
      224030 Brest
      Belarus

      Map
      P: +375-162-52-5268
      F: +375-162-50-9888
    • Gomel

      80 Rechitsky Avenue,
      246012 Gomel
      Belarus

      Map
      P: +375-17-389-0100, ext. 54079
      F: +375-232-70-50-31
    • Grodno

      87B Gorkogo Street,
      230005 Grodno
      Belarus

      Map
      P: +375-17-389-0100, ext. 69011
    • Minsk

      1/1 Academician Kuprevich Street,
      Suite 110,
      220141 Minsk
      Belarus

      Map
      P: +375-17-389-0100
      F: +375-17-268-6699
    • Mogilev

      19 Cosmonaut Street,
      Suite 510,
      212009 Mogilev
      Belarus

      Map
      P: +375-17-389-0100, ext. 1001
    • Vitebsk

      11-a Stroitelei Avenue,
      Suite 311,
      210032 Vitebsk
      Belarus

      Map
      P: +375-17-389-0100, ext. 54433
    Learn more
  • Kazakhstan

    • Astana

      8 Auezova Street,
      Office B,
      010000 Astana
      Kazakhstan

      Map
      P: +7-7172-475-970
      F: +7-7172-688-774
    • Karaganda

      58/3 Ermekova Street,
      100009 Karaganda
      Kazakhstan

      Map
      P: +7-7212-93-01-01 +7-7212-93-01-00
    Learn more
  • Russia

    • Moscow

      9th Radialnaya Street,
      Building 2,
      115404 Moscow
      Russia

      Map
      P: +7-495-730-6362
      F: +7-495-730-6361
    • Izhevsk

      150 V. Sivkova Street,
      426057 Izhevsk
      Russia

      Map
      P: +7-3412-271882 +7-3412-271337
    • Nizhny Novgorod

      30 Poltavskaya Street
      603089 Nizhny Novgorod
      Russia

      Map
    • Ryazan

      16 Gogolya Street,
      390035 Ryazan
      Russia

      Map
      P: +7-4912-93-57-33
    • Saint Petersburg

      22/2 Zastavskaya Street,
      MegaPark,
      196084 Saint Petersburg
      Russia

      Map
      P: +7-812-611-1094
      F: +7-812-611-1094
    • Samara

      21 Michurina Street,
      443110 Samara
      Russia

      Map
      P: +7-846-200-0970
    • Saratov

      37 Tankistov Street,
      410019 Saratov
      Russia

      Map
      P: +7-8452-692-981
    • Sergiev Posad

      7 Akademika Silina Street,
      141313 Sergiev Posad
      Russia

      Map
      P: +7-496-547-11-39
      F: +7-496-547-11-39
    • Togliatti

      31E Yubileynaya Street,
      445037 Togliatti
      Russia

      Map
      P: +7-495-730-6360, ext. 47650
    • Tver

      8 Kolodkina Street,
      170002 Tver
      Russia

      Map
      P: +7-4822-630-070 +7-4822-630-071 +7-4822-630-072
      F: +7-4822-630-073
    Learn more
  • Ukraine

    • Dnipro

      17A Volodymyra Monomaha Street,
      49000 Dnipro
      Ukraine

      Map
      P: +380-56-790-5651
    • Kharkiv

      33G 23 Serpnya Street,
      61072 Kharkiv
      Ukraine

      Map
      P: +380-57-728-06-22
    • Kyiv: Registered office

      28 Fizkultury Street,
      03150 Kyiv
      Ukraine

      Map
      P: +380-44-390-5457
      F: +380-44-390-0861
    • Kyiv: Visitors office

      14B Kudryashova Street
      03035 Kyiv, Ukraine

      Map
      P: +380-44-390-5457
      F: +380-44-390-0861
    • Lviv

      45 O.Stepanivny Street,
      79018 Lviv
      Ukraine

      Map
      P: +380-32-242-4642
      F: +380-44-390-5458
    • Vinnytsia

      51 Ovodova Street,
      21000 Vinnytsia
      Ukraine

      Map
      P: +380-432-551-294 +380-432-551-275
      F: +380-432-551-293
    Learn more