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Getting ahead of the MiFIR curve

Firms can address MiFIR challenges by considering all of their options.

When the MiFIR regulation comes into effect in January 2017, many firms likely won’t be ready. That’s because the tight deadline for implementation means market participants will have a lot of work to do in the coming months. Where can they start? What can they do?

Build on experience from MiFID I
When MiFID I was introduced in 2007, numerous firms failed to respond appropriately. This resulted in costly late remediation efforts and a series of hefty fines along with the corresponding reputational damage.

Six key lessons stand out from MiFID implementation projects:

  • Governance and ownership—Any shortfall in governance or ill-defined accountabilities can severely undermine progress. Focus on developing a Target Operating Model for MiFIR to cover management of transaction reporting post go-live.

  • Legacy architecture and scalability—Ensure that legacy architectures can scale to support the significant increase in reporting transactions mandated by MiFIR.

  • People and skills—To ensure a fast, efficient and effective MiFIR implementation, ensure the team has the right mix of transaction reporting knowledge.

  • Program mobilization—Firms need to be realitic about the cost for implementation. We estimate that a typical Tier 1 investment bank will need to spend around $15 million on MiFIR.

  • Front-to-back impact—MiFIR will create challenges across front, middle and back office systems and databases. Expect a significant increase in data requirements for the front office as well as complex reference data.

  • Regulator engagement—Ensure transparency with the corresponding National Competent Authority over risks and issues faced throughout implementation.

What should firms be doing now?
Given the short time until MiFIR takes effect, market participants should move fast to identify and implement a transaction reporting model that is best suited to their business. Choices range from in-house implementations to vendor managed approaches.

So, what’s a firm to do? Decide on the transaction reporting model that suits your firm:
Option ASiloed SolutionTactically add new trade flows and connections to existing transaction reporting architectures and benefit from short-term cost savings, being quick to market, and gaining ownership and control. But, this solution does have a downside: it’s technology driven, builds on legacy architecture and has scalability issues.

Option B—Single Reporting Unit—Create an in-house platform that meets multiple reporting requirements of transaction and trade reporting and gain ownership and control, internal efficienies and an extensible solution. The flipside? This solution is slower to market, requires internal SMEs and has a high cost of delivery.

Option C—Vendor Managed—Transaction reporting through business process outsourcing or utilization of market utilities. This solution has potentially lower costs, externally managed rules and has a shared risk. However, consider this: the solution has a vendor quality risk, relies on external and has client data risks.

To be successful, firms should not only learn from the experience of MiFID I, but be proactive in both identifying and implementing a transaction reporting approach that complements their business model.