MiFID II Requires a Strategy Not Just Tactics

In a Q&A with FTF News, Gaurav Chandra, product manager for AxiomSL, argues that a strategic approach is superior to a limited, tactical fix.

By Eugene Grygo
October 3, 2017

(Editor’s note: The MiFID II deadline and reforms are hitting home for many non-European firms and they have to decide whether to take a tactical versus strategic approach to overhauling IT and operations, says Gaurav Chandra, product manager for AxiomSL. The company, which offers regulatory reporting and risk management solutions, bases its offerings on an enterprise data management (EDM) platform that supports data lineage, risk aggregation, analytics, workflow automation, validation and audit functionality, officials say. Chandra recently answered questions from FTF News.)

Q: In your opinion, are U.S. firms taking mostly a tactical response to the MiFID II deadline?

A: We are finding that smaller firms (especially buy-side firms) are taking a tactical approach to the implementation of MiFID II hoping to achieve compliance by any means before the deadline of January 3, 2018.

However, we are seeing a mix among larger sell-side firms.

While some are already rolling out strategic solutions that should be much more robust in the long term, others are falling back on tactical fixes to be compliant by January 3, with the aim of finishing the implementation of their strategic solution later in the year.

Q: Conversely, what are the arguments for a strategic response to MiFID II?

A: In the regulatory world, we are seeing an increasing frequency of updates and changes to regimes over time.

Strategic solutions allow firms to adapt quickly to change with reduced operational risks.

Firms should think of the long-term cost implications of having to revise their tactical solutions multiple times over the next decade. Firms will want to consider spending more in the short term to prevent increased costs in the long term.

Q: Who within a firm should enforce a MiFID II strategy? Should it come from C-level and board-level people or lower within the hierarchy?

A: The MiFID II strategy of a firm must be driven from the top of an organization down.

MiFID II has a huge impact on all aspects of a firm’s activities. The reporting elements are just one part of the legislation. There are many operational changes that are required under MiFID II that will require oversight from the highest levels of a firm.

Q: What would you say to firms that are praying for European authorities to move the MiFID II deadline?

A: In September, the regulator has made it clear the MiFID II deadline is going ahead as planned.

The regulator will not come down harshly on any firm that it finds has exhausted every possible resource but failed to be compliant on time.

Conversely, if the regulator finds that not every effort has been made, a firm can expect very harsh treatment indeed.

The regulator has stipulated that it will be targeting trade and transaction reporting first when looking at the compliance of firms as this is easier to address earlier on.

Q: How likely is it that the push for a MiFID II overhaul would eliminate manual systems at a firm?

A: This is very likely.

There are near real-time reporting requirements for MiFID II that require trade details to be submitted to an Approved Publication Arrangement (APA) in under 15 minutes (and as little as 60 seconds for equity and equity-like products). This activity is not achievable by a manual system.

Additionally, there are real-time requirements for the monitoring of position limits that will be impossible to achieve on a manual system, if trading volumes are significant.

This article was first featured in the FTF newsletter.