Harpreet Singh, Director, Brickendon
The Markets in Financial Instruments Directive, aka MiFID II, remains one of the most talked about regulations in the financial services sector. Its impacts are far reaching – both in terms of the macro structure of the overall financial markets and the internal functional areas within the financial institutions themselves.
The deadline for MiFID II compliance has already been delayed a year to January 2018 in response to concerns about the complexity of implementation. With the new deadline less than a year away, many banks and asset managers are still worried. Their concerns can be primarily divided into two parts:
The foundation of MiFID II is data, however it requires firms to understand their data, conduct analysis of it, report it, or make decisions based upon it. The requirements for data are not limited to a specific part of the rules but are spread out across various articles and sub-articles within the regulation. As with many other data regulations, the data requirements can be categorised under completeness, timeliness and accuracy:
- Completeness. MiFID II asks for more data objects and more data points than its predecessors. For trade and transaction reporting examples include quotes, orders and transactions, and data points are the number of fields within them. For example, MiFID II requires 50 more fields to be filled out for transaction reporting than were required for MiFID I. Additionally, MiFID II requires firms to understand their execution-related data, trade data and product and client reference data – while potentially either publicising it to clients or sending it to regulators.
- Accuracy. One of the main aims of MiFID II is to bring standardisation to the marketplace. Standardisation makes it easier to compare firms, identify the laggards and measure accuracy. The reference data requirements are already proving onerous and have far-reaching data privacy issues for non-EU participants.
- Timeliness. Requirements including ‘as soon as technologically possible’ and ‘near real-time’ have become the norm for regulatory compliance since the credit crunch. MiFID II requires near real-time reporting for all trades conducted at a trading venue. Moreover, all transactions must be reported to their National Competent Authority (NCA) no later than one day post-transaction.
- Unclear rules. Almost every area of MiFID II regulation has various levels of uncertainty – although the areas of best execution, systematic internaliser regime, extra territoriality and data protection are particularly unclear. Parts of these issues relate to the amount of data that MiFID II requires while the remainder stems from the nature of the directive itself. The products involved are significantly more complex and the market structure is bilateral in nature. As a result, the data to conduct the required analysis is not readily available.
MiFID II impact
- Business Model. Some of the key impacts to business models will come from changes to market structure, trading and clearing obligations, product governance and investor protections. The harmonisation of market structures into trading venues will lead to the migration of execution services from dealers to third-party venues and the separation of research from execution – leading to the creation of stand-alone research facilities. MiFID II focuses on product suitability and as a result requires better client analytics. These changes to business models may have unintended consequences that regulators or governments have not prepared for.
- Internal Processes. A key aspect of MiFID II is to strengthen the compliance function. Corporate governance is not only an issue for senior management but also for compliance, which provides advice before the remuneration policies are approved and is required to utilise a risk-based approach for establishing monitoring programmes. Firms are expected to establish and maintain a complaints policy, which should analyse the complaints data to identify and address any issues. Along with compliance, the product governance process has been expanded to encompass the whole product life cycle and carry out various suitability and appropriateness tests. These changes to the internal processes should ideally reflect a change in conduct and culture, but the pace of the changes may difficult.
- IT infrastructure. MiFID II will impact the IT infrastructure of all its member firms from front-to-back. In the front end, buy-side firms will need to build new execution management systems alongside existing order management systems. Investment firms will need to keep the records of telephone conversations or electronic communications if a transaction was intended to – or actually did – take place. The firms providing best execution will need to build infrastructure in the front-office technology stock to ensure they have taken ‘all sufficient steps’ to comply. At the back end, golden data sources should be enriched with LEIs and ISINs for over-the-counter (OTC) products and identifiers for individuals. High-frequency trading firms will need to provide time stamps which are accurate up to micro seconds. The above examples simply reflect what is expected to be a significant technology uplift in what are already very cost-conscious technology organisations.
Without doubt there will be implementation challenges that will be difficult to overcome. The regulators expect better data quality and now regularly penalise firms that don’t comply. Given that MiFID II is considerably more complex and impacts many more products and firms, it’s likely that more fines will be issued once it comes into force.
The question is whether there is a value in giving more time to industry so that they can better adjust to life post-MiFID II? Will the implementation create a division between big and small firms or would it actually standardise the market and create more transparency for investors? The expectation of the regulators is that it will do the latter – but the only sure thing is that it will change the financial markets as we know them today.
Duo glide around world’s largest fountain in Dubai
Paragliders Llorens and Goberna take magical flight above the Palm Fountain.
Horacio Llorens and Rafael Goberna defied gravity to perform The Breaking Pointe flight around the world’s biggest fountain at The Pointe, Palm Jumeirah in Dubai. Here is all you need to know:
– Spaniard Llorens is a five-time world champion and Infinity Tumbling Guinness World Record holder, who has performed a series of spectacular projects during the last five years including paragliding with a flock of starlings and with the beautiful Aurora Borealis as a backdrop.
– Brazilian Goberna was a Guinness Book of World Records winner at only 12-years-old and, in December 2016, he took to the skies above one of the seven wonders of the natural world when paragliding at Iguazu Falls.
– This time around, the duo teamed up in Dubai to showcase The Palm Fountain at the Pointe, Palm Jumeirah. They overcame a tricky preparation period to expertly glide between the fountain’s powerful jets of water.
– Spanning across the boulevard, the Palm Fountain features two giant floating platforms covering 14,000 square metres of sea water. Reaching an impressive 105 metres high and lighting up the Dubai sky with 3,000 LED lights, the fountain “dances” to hit songs from sunset until midnight.
– They undertook training first at Paramotor Desert Adventure on January 12 to test out their brakes and motors with technician Ramon Lopez finally arriving after being held up by the heavy snow in Madrid.
– Training was crucial for the challenge of flying during the night with low visibility as safety director Alan Gayton ensured they had a reserve parachute in case of a technical issue with the main parachute. Llorens and Goberna also had to study the movement of the water with great precision in order not to get caught up in the jets of water
– Flying over water, it was also mandatory to have a lifejacket with rescue boats, jet skis and divers on hand which came handy when Goberna suffered a technical malfunction on the first January 14 practice run.
– After repairs long into the night, they returned to Paramotor Desert Adventure to test out the motors again before completing the stunning flight on January 15 with Llorens and Goberna performing in harmony.
– Llorens, 38, revealed: “As soon as we got the opportunity, we wanted to fly there. We needed to know the area really well beforehand and we needed to know how to ‘play’ with the fountain – this was new for us. Such strong streams of water shooting 100 metres up is a lot, so we had to be really prepared.”
– Goberna, 26, explained: “The motor wasn’t flying so good because, prior to arriving in Dubai, it was last used in Europe at high altitude. I needed to adjust the carburettor in the air inside the motor. In the first practice flight over the water, I broke one propeller. I really couldn’t understand what was happening and then another one broke. Eventually, a backup motor was required. After a long journey, the final result was beautiful! The team worked incredibly hard to make it.”
– Llorens added: “The highlight for me was playing between the super shooters with Rafael, because it’s something we’ve never done before; it felt really new and really powerful.”
EU sets itself jobs, training and equality targets for 2030
By Jan Strupczewski
BRUSSELS (Reuters) – The European Commission on Thursday announced goals for the 27-nation bloc to reduce poverty, inequality and boost training and jobs by 2030 as part of a post-pandemic economic overhaul financed by jointly borrowed funds.
The EU executive arm said the European Union should boost employment to 78% in 2030 from 73% in 2019, halve the gap between the number of employed women and men and cut the number of young people neither working nor studying to 9% from 12.6%
“With unemployment and inequalities expected to increase as a fallout of the pandemic, focusing our policy efforts on quality job creation, up- and reskilling and reducing poverty and exclusion is therefore essential to channel our resources where they are most needed,” the commission said.
The goals, which will have to be endorsed by EU leaders, also include an increase in the number of adults getting training every year to adapt to the EU’s transition to a greener and more digitalised economy to 60% from 40% now.
Finally, over the next 10 years, the EU should reduce the number of people at risk of poverty or social exclusion by 15 million from 91 million in 2019.
“These three 2030 headline targets are deemed ambitious and realistic at the same time,” the commission said.
The goals are part of the EU’s set of 20 social rights, agreed on in 2017, to make the EU more appealing to voters and counter eurosceptic sentiment across the bloc.
They say everybody has the right to quality education throughout their lives and that men and women must have equal opportunities in all areas and be paid the same for work of equal value.
The unemployed have the right to “personalised, continuous and consistent support”, while workers have the right “to fair wages that provide for a decent standard of living”.
(Reporting by Jan Strupczewski; Editing by Nick Macfie)
UK aero-engineer Meggitt eyes return to growth after pandemic slump
LONDON (Reuters) – British engineer Meggitt said that it could return to profit growth in 2021 provided there are no further lockdowns, despite a weakening in the struggling aviation market at the end of 2020 and early this year.
Pandemic restrictions halted much flying globally last year and forced plane makers Boeing and Airbus to cut production rates, dragging down suppliers like Meggitt, which makes and services parts for such aircraft.
Meggitt’s underlying operating profit plunged by 53% to 191 million pounds ($267 million) in 2020, it said on Thursday, despite continued growth in its defence business which makes parts for military jets and accounts for about 45% of the business.
Meggitt, however, said it expected air traffic to recover in the second half of the year which would help it return to profit growth over the year, although its guidance for flat revenue disappointed analysts who had expected growth of 6%.
Meggitt’s Chief Executive Tony Wood said in November that he had expected flying to start to recover by Easter, but new variants have led to more restrictions and delayed the recovery.
“It has gone back a couple of months… it’s now very much in the summer,” Wood said of the recovery in an interview on Thursday.
Further in the future, Meggitt is positioning itself for the move to lower emissions flying, and its sensors and electric motors will be used on electric urban air mobility platforms, such as flying taxis, and in hybrid aeroplanes being developed.
But Meggitt said new tax breaks announced in Britain’s annual budget on Wednesday aimed at encouraging investment would not change its plans.
“Yes, it will be a benefit. Are we looking at any acceleration as a result specifically of that? Not really,” Woods said.
Shares in Meggitt were down 1% to 427 pence at 0943 GMT. The stock has risen by 50% since news of a COVID-19 vaccine last November, but is still down 23% on where it was pre-pandemic.
($1 = 0.7165 pounds)
(Reporting by Sarah Young; Editing by Alistair Smout and Susan Fenton)
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Duo glide around world’s largest fountain in Dubai
Paragliders Llorens and Goberna take magical flight above the Palm Fountain. Horacio Llorens and Rafael Goberna defied gravity to perform...