Can your infrastructure meet the requirements of MiFID II?

With GDPR still a prevalent concern across the financial services industry, financial institutions face another major regulatory challenge in the form of the Markets in Financial Instruments Directive II (MiFID II). In the UK alone, the Financial Conduct Authority received 1,335 notifications of inaccurate transaction reporting under (MiFID II during 2018*).

The directive is multi-faceted. Ostensibly, the EU designed it to offer more protection to investors by introducing greater transparency to asset classes, whether they’re equities, fixed income, exchange traded funds or foreign exchange.

But this has consequences for your underlying networking infrastructure, which is required to support greater and more timely data transactions. This is especially pertinent for trading firms in the High Frequency Trading (HFT) sector, where trimming network latency by nanoseconds results in increased profits and competitive advantage.

With this in mind, MiFID II mandates latency standards across global banking networks. It also requires communication across those networks to be captured and recorded in real-time, and time-stamped accordingly.

Time stamping is a critical factor, requiring correct handling, with uniform latency across a network helping to create a consolidated view of network transactions which all carry accurate time-stamps.

There are certain technical standards for time-stamping that firms must meet under the new directive. Among these are: choosing the clock that you will use as a reference; indicating the type of organizations involved in a trade; defining the type of trade; and the level of time-stamp granularity -e.g. microseconds or nanoseconds. If you, as a trader, are dealing with a dual-listed, cross-border stock that covers two time zones, your infrastructure needs to be sufficiently uniform so you can document well and timestamp accurately. Once again, latency is the key.

The consequences are even fiercer than with GDPR, as non-compliant companies risk fines of up to €5m, or up to 10% of global turnover**. This is a concern for the 65% of capital market firms across Europe who stated in a 2018 survey that they had no adequate or systematic method in place to monitor trades in accordance with best execution criteria***.

Read this blog to find out how else you should be equipping your network infrastructure to ensure efficiency.  

*  https://www.ftadviser.com/regulation/2019/04/10/more-than-1-000-mifid-ii-breaches-reported-to-fca/

**  https://www.pwc.ch/en/publications/2018/solgari-industry-report.pdf 

***    https://www.finextra.com/blogposting/16488/mifid-ii—one-year-on