October 6, 2015 – By David Attenborough, Business Development Manager, EMEA
The eagerly-awaited publication of the final technical standards for the Markets in Financial Instruments Directive II (MiFID II) on 28 September means financial firms can now get their implementation projects under way. With the requirements set to come into force in January 2017, time to market will be foremost in the thoughts of many firms, along with perennial concerns about containing costs.
MiFID II expands upon the incumbent MiFID requirements. Under MiFID II, firms will need to report not only on financial instruments traded on regulated markets, but also on those traded on multilateral trading facilities (MTFs) and organized trading facilities (OTFs). The number of data attributes to be reported on each trade will also increase from 23 under MiFID to 65 under MiFID II.
As they look for a platform to use for their MiFID II reporting, firms will find that most of the products on the market today require users to load their data in a specific format. This means using an extract, transform, load (ETL) tool to prepare the data.
This type of set-up has a number of drawbacks. For a start, it significantly increases the total cost of ownership (TCO) for firms, as they must invest in two separate pieces of infrastructure – an ETL tool and a reporting tool – and then run and maintain both of them. Firms that go down this route will also experience a much longer time to market – something that few can afford in the case of MiFID II.
If firms use a reporting platform that requires data to be loaded in a specific format, they will need to do comparisons between the formats used in their internal systems and the format mandated by the platform. They will then need to program an ETL tool to transform their data accordingly. With 65 data attributes to be reported on trades involving a wide range of instrument types, this promises to be a time-consuming project.
Before they begin MiFID II transaction reporting in January 2017, firms will want to do test runs and business-as-usual (BAU) runs. To accommodate these, they will need to be live on a MiFID II reporting solution by the middle of 2016 or by early in the third quarter at the latest. This will be extremely difficult to achieve if firms work with a reporting platform that requires them to also use an ETL tool.
Instead of relying on an ETL tool, financial firms should choose a reporting platform that does not require them to undertake data conversion work. The platform should be able to support the entire MiFID II reporting process within a single environment. This will significantly reduce complexity, TCO and time to market because firms will not need to spend time implementing an ETL tool.
Using a data-agnostic platform will also support firms’ compliance with the Basel Committee on Banking Supervision’s 239 Principles for Effective Risk Data Aggregation and Risk Reporting (BCBS 239), which come into effect in January 2016 and place a great emphasis on data lineage.
In order to demonstrate that they are in control of their data and that it is in compliance with BCBS 239, banks will need to be able to quickly respond to queries about the data in their regulatory reports. As they attempt do this, an ETL layer will add an extra layer of complexity. Whereas if firms use a data-agnostic regulatory reporting platform, they will be able to trace back their data in a format they are familiar with and respond to a regulator’s queries quickly.
With just over a year to go until the requirements come into force, financial firms have some big decisions to make about their approach to MiFID II. Top of the list should be the decision to ditch ETL.
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