Firms Continue to Turn to Cloud-Based Solutions to Comply with MiFID II Rules

For many firms, the RTS-28 requirement and the upcoming RTS-27 reports are proving to be a headache. Collecting complex data on this large of a scale and on a detailed level is a complicated effort that requires integrated data science services with a depth of trade data and robust analytics that allow customers to address these regulatory and reporting challenges. Given these exacting standards, cloud-based platforms are ideal in offering the most sophisticated and flexible MiFID II-compliant solutions.

MiFID II continues to present challenging obligations for financial institutions nearly six months since the rule first went into effect. RTS-28, the most recent regulatory hurdle under MiFID II, is meant to ensure transparency and keep firms accountable to best execution policies when transacting on behalf of clients. The reporting standards under RTS-28 require investment firms to disclose their top five execution venues, publish granular details on the execution data obtained at each of these venues, and provide a qualitative review of their best execution policies accompanied by an analysis of how execution is performed.

For many firms, the RTS-28 requirement and the upcoming RTS-27 reports, due June 30 – in which venues including MTFs, SIs, liquidity providers, and market makers must publish nine tables of granular data points related to their quality of execution on a quarterly basis – is proving to be a headache. Collecting complex data on this large of a scale and on a detailed level is a complicated effort for most firms. It requires integrated data science services with a depth of trade data and robust analytics that allow customers to address these regulatory and reporting challenges. This is a particularly challenging task for firms that have built on-premise systems designed to comply with their initial interpretations of MiFID II.

The principle of best execution underlying MiFID II means that market participants will all be held to higher standards – standards that go beyond simply justifying the price. This means taking “all sufficient steps” to obtain the most advantageous terms for investors by evaluating the price, size, venue, speed and likelihood of execution. Market participants must develop policies outlining how they achieve best execution using these factors, review policies annually and benchmark actual execution against these documented guidelines, while improving on and updating policies accordingly. Firms are obligated to carry out quality of execution reporting and publish these reports on an annual basis.

Given these exacting standards, cloud-based platforms are ideal in offering the most sophisticated and flexible MiFID II-compliant solutions, and more FX firms will likely transition to these platforms, enabling them to be fast and nimble in making required changes as they continue to adjust to regulations. Financial firms need to engage a technology partner that can deliver a fully compliant cloud-based system that addresses each stage of the FX workflow. A fully electronic workflow will provide the means not only to prove best execution, but also to practice best execution processes, facilitating access to aggregated liquidity, sophisticated netting capabilities and the use of advanced execution algorithms in an end-to-end compliant trading solution.

Once firms meet the regulatory requirements, all types of market participants will benefit. The increase in transparency surrounding execution data and policies will provide firms with deep insight into the execution quality achieved and delivered to the end investors. This insight will allow market participants to continuously improve on execution and demonstrate that they are trading with the best interests of their customers in mind.

This article also published on TabbFORUM.