Post on 30-Aug-2019
Regulatory Advisory Services
7th PwC MiFID II Breakfast
Markets and trading re-defined?
Regulatory Advisory Services
25 April 2017
PwC
25 April 2017
1 MiFID II update 3
2 Mapping of key MiFIR impacts 5
3 FX derivatives under MiFID II / MiFIR 9
4 Data and Reporting Challenges 15
5 Contacts 22
Agenda
27th PwC MiFID II Breakfast
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
MiFID II update
37th PwC MiFID II Breakfast
1 MiFID II update Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
MiFID II / MiFIR TimelineRTS published in OJ, Q&As are ongoing
47th PwC MiFID II Breakfast
1 MiFID II update
Q1 Q2 Q3
2014
S1 S2
2015
S1 S2
2016
Q1 Q2 Q4Q3
2017
Q4
*Possibility of extension**ESMA guidelines: Transaction reporting, order record keeping and clock synchronisation
2018
Jan
LE
VE
L 1
LE
VE
L 2
LE
VE
L 3
Entry into force: 2 September 2014
Delegated Acts
ESMA RTS
ESMA ITS
ESMA guidelines**
3 Jan 2018Application Date
Publication of:• 2 delegated regulations • 1 delegated directive (to be transposed)
1st batch 2nd batch
1st batch 2nd batch*
Transposition period (national level) Deadline: 3rd July 2017
Publication in the OJ
Draft Final Version
ESMA Q&As
1st Version Update
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
Mapping of key MiFIR impacts
57th PwC MiFID II Breakfast
2 Mapping of key MiFIR impacts Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
RTS regulating the entire value chainRe-defined trade activities trigger compliance duties
67th PwC MiFID II Breakfast
2 Mapping of key MiFIR impacts
RTS 1RTS 2
RTS 23**RTS 27**
Safekeeping / Custody
Trade internalisation/ Dealing on own
account
Trading venue activities
11 additional RTS
Del. Directive
07/04/2016
Del. Directive
07/04/2016
RTS 22 RTS 28
RTS 22 RTS 28
RTS 24RTS 25
RTS 24RTS 25
RTS 1RTS 2RTS 4
RTS 27
1
Trade routingRTS 22 RTS 28
Del. Directive
07/04/20162
4
5
Del.
Directive 07/04/2016
Execution on venueRTS 24*RTS 25
Del. Directive
07/04/2016
RTS 22 RTS 28
3
• Segregation of assets & due diligence requirements on firms performing safekeeping activities
• RTS 22: Transaction Reporting• RTS 28: Publication of top 5 execution venues
* Indirect requirement** In case of an SI-classification
• RTS 24: Record Keeping for Trading Venues• RTS 25: Clock Synchronisation
• RTS 1/2: Pre- and Post-trade Transparency
• RTS 23: Reference Data• RTS 27: Reporting on Ex. Quality
• Requirements on organisation, non-discriminatory access, reporting etc.
All financial
instr.
Equities
Equities ETDs
DerivativesFixed
Income
DerivativesFixed
Income
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
Key MiFIR ImpactsRe-definition of ‘specific activities’ can create collateral damage
87th PwC MiFID II Breakfast
2 Mapping of key MiFIR impacts
1 2 3 4
RTS 6:
Organizational requirements of firms engaged in
algorithmic trading
Algorithmic Trading
Market Maker Benchmarking Commodity Derivatives
RTS 8:
Requirements on market making agreements and
schemes
RTS 16:
Access in respect of benchmarks
RTS 20 & 21:
Application of position limits to
commodity derivatives
5
Clearing
RTS 15 & 26:
Requirements on clearing obligation and clearing access
Non-exhaustive list of special cases
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
FX derivatives under MiFID II / MiFIR
97th PwC MiFID II Breakfast
3 FX derivatives under MiFID II / MiFIR Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
FX derivatives under MiFID II / MiFIRIncreasing regulatory scrutiny represents major business impact
107th PwC MiFID II Breakfast
3 FX derivatives under MiFID II / MiFIR
MTF / OTFs for FX Derivatives
SIs for FX derivatives
PRIIPS KIID for retail investors
EMIR Collateral requirements
Post-trade transparency
Transaction reporting
ISINs for FX
Best Execution for OTC products
Disclosure of costs and charges
Other regulatory initiatives
Client / Investor protection
Changes in market structure
Reporting and Publication
Product attributesNew EMIR reporting
Costs
Income
Triggers
FX Business
Triggers
Higher costs due to additional regulatory requirements
Pressure on margins due to more price transparency and additional trading venues
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
• Active management of the FX trading books and currency risks;• Direct access to several liquidity providers, often outside of Luxembourg.
FX derivatives under MiFID II / MiFIRFX business is of major importance to investment funds
117th PwC MiFID II Breakfast
3 FX derivatives under MiFID II / MiFIR
Two major business models can be observed on the Luxembourgish market:
Back-to-back trades / Micro-hedging
Active management / Macro-hedging
• Client trades are effectively mirrored to the market side to hedge with a single liquidity provider;• The bank is only exposed to currency risks for the instance of booking/transiting (no open positions);• The scenario is often observed in Group settings.
Bank Liquidity Provider
Client 1
Client 2
Client 3
Bank
Liquidity Provider 1Client 1
Client 2
Client 3Liquidity Provider 2
1
2
Potential SI class.
Potential trading venue class.
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
FX derivatives under MiFID II / MiFIRGranularity of the definition of FX contracts
137th PwC MiFID II Breakfast
3 FX derivatives under MiFID II / MiFIR
Currency PairMaturity Bucket
Contract TypeContract Type
Maturity Bucket
Currency Pair
Examples:• FX Forward • FX Options• FX Swap
Deliverable >< Non-deliverable
• Up to 1 week• 1 week to 3 months• 3 months to 1 year• Afterwards: Yearly rhythm
Examples:• EUR/USD• EUR/CHF• GBP/JPY
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
Details to be reported in transaction reports65 data fields including client & decision maker identity
167th PwC MiFID II Breakfast
4 Data and Reporting Challenges
Primary pain points
Extension of the accuracy requirements
• Specific time of every reportable event
• Accuracy dependent on the type of trading activity (High-frequency trading, electronic access to a trading venue, etc.)
Reporting of employee identifying information
• Responsible person or algorithm for investment decision
• Responsible person or algorithm for execution
Additional execution details
• Partial executions need to be reported individually
• Information of partial executions must be provided down-stream to client investment firms.
Extension of client information
• Natural person: Name, date of birth, national identifier
• Legal entity: LEI
• Identification of the person who makes the investment decision
Extension of instrument details to be reported
• New ISINs and underlying instrument codes
• Complex trade identification
• Waiver & OTC post-trade indicator
Client information
PartialExecution
Investment decision and
executionwithin firm
Financial instrument
Time stamp
Client strategy
Reporting of client strategy
• Identification of short selling
• Identification of hedging with commodity derivatives
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
Transaction Reporting Business ModelsWhat are the advantages of reporting consolidation?
137th PwC MiFID II Breakfast
3 FX derivatives under MiFID II / MiFIR
• Significant overlap in reportable information between transaction reporting and post-trade transparency allows for re-use of data
• Overlaps include execution details and OTC post-trade indicators
• Consolidation of transaction data facilitates the monitoring of systematic internaliser thresholds
• Transaction reporting includes trading capacity for identification of internalised transactions
• Top 5 trading venues: Transaction reporting includes trading venues and OTC counterparty information
• Quality of execution (SI only): Time stamping of transactions allows for identification of concerned transactions and extraction of required details (quantity, price, etc.)
• Overlaps exist between regulatory reporting regimes, and the same transaction may be reportable under multiple regulations
• Alignment of regulatory reporting regimes is increasing
Systematic Internaliser
Other Regulatory ReportingBest Execution Publications
Post-trade Transparency
Consolidated
data sourcing and re-use
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
PwC
25 April 2017
Transaction Reporting Business ModelsSynergy potential depends on reporting alignment
217th PwC MiFID II Breakfast
4 Data and Reporting Challenges
Synergy Strength HighLow MediumLowHigh Medium
Other Regulatory Reporting
Post-trade TransparencySystematic Internaliser Best Execution Publications
• Large data overlap between monitoring of systematic internaliser thresholds and the preparation of the best execution publications
• But additional data is required for both topics
Lack of alignment between regulatory reporting regimes significantly reduces synergy potential, but this may change with time
Synergy potential between post-trade transparency and transaction reporting is reduced due to the timing
Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts
MiFID II updateAgenda
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Contacts
Olivier Carré PwC Luxemburg, Partner, MiFID II Leader
2, rue Gerhard Mercator B.P. 1443 L-1014 Luxembourg
Phone: +352 49 48 48 4174 Email: olivier.carre@lu.pwc.com
Join us on www.pwc.lu/mifid or www.mifid2.lu