Delivering post-trade transaction reporting for North American firms by the January 3, 2018

AxiomSL | EMIR

28 September 2017 –

The Markets in Financial Instruments Directive II (MiFID II) is the largest trade and transaction-focused regulatory implementation financial firms have ever had to undertake. This sweeping regulation affects all sell side and buy side firms that trade in Europe, not to the mention trading venues and other entities. North American banks have extensive experience in regulatory compliance, not least because of Dodd Frank reporting, but they are still facing significant challenges in complying with MiFID II. Buy side firms are struggling even more than their sell side counterparts because of their lack of knowledge and the high cost of compliance. MIFID II transaction reporting is rated as one of the most disruptive MiFID II requirements, and it is living up to its reputation.

The major issue is the broadened scope of MiFID II, which expands the definition of a reportable transaction to include significantly more data elements than MiFID I. For instance, transaction reporting will have to incorporate personal identifiers such as a national client identifier or passport number for all individuals associated with the transaction.

In addition, MiFID II requires a great deal of information around who traded an instrument in addition to what was traded. This information is often difficult to gather – especially for the other trade counterparty. To this end, firms’ data requirements have increased in scope and scale significantly.

Furthermore, understanding transaction reporting obligations in a geographic context is also critical, in that MiFID II reporting obligations extend beyond EU borders. For example, a derivative traded on a non-EU venue, where the underlying instrument is traded on an EU venue, must be reported. All these factors combine together to increase the complexity of MIFID II trade and transaction reporting.

Challenges around sourcing required data and integrating standard data codes for compliance by January 3

As part of the MiFID-related data management challenges, massive data quantities need to be sourced, normalized and reconciled from a variety of internal and external databases. Technology solutions must integrate required transaction reporting fields from disparate reference data and legal entity databases, order management systems and human resources systems, along with the executing counterparty or trading venue. All this must be done whilst ensuring data transparency and lineage throughout the entire process.

As a result, it is essential for financial firms to implement a strategic platform for trade and transaction reporting. The platform should be scalable, robust and flexible so they can add modules as new requirements are introduced, and connect to existing Approved Reporting Mechanisms (ARMs) to submit transaction reports successfully.

AxiomSL’s Platform pulls trade data from multiple source systems and consolidates it in a single trade information hub. The solution takes in raw data feeds, aggregates the trading data and transforms it into the appropriate template to be passed through the data quality and validation layers. The data is then formatted and sent to multiple receiving bodies such as regulators and trade repositories simultaneously. Business users can monitor the process minute by minute on a user-friendly dashboard interface.

Regulations and transaction reporting regimes change over time. Data fields are changed and added to collect more information from firms. The validation and reporting templates also change. In-house built solutions tend to be hard coded and static, and while these tactical solutions meet the requirements on day one, it is difficult to make changes later. This is particularly problematic because regulators may give firms as little as six months to make a change while trade repositories may only give them one month. AxiomSL’s solution delivers these updates in a timely fashion and is flexible and robust, so it can be updated continually to reflect such changes.

It is imperative for financial firms to take a strategic view when addressing trade and transaction reporting for MIFID II and G-20 requirements alike. Partnering with AxiomSL allows firms to comply with regulations from various jurisdictions as they come into effect. A single team can monitor transaction reporting activity, and since processes are automated through a single hub, errors are less likely to occur. These improvements to the reporting process reduce both operational risk and costs.