The big picture:
MiFID II’s reporting rules apply across more asset classes than
MiFID I – including derivatives - and include trades executed
trading venues within the EU, such as a multilateral trading
facility, organised trading facility, or via a systemic internaliser.
They will include the identification of waivers for large orders,
illiquid instruments, short selling and commodity derivatives.
The dynamics between the buy- and sell-side are set to change
drastically under MiFID II. Currently, MiFID I allows both parties to agree who has the regulatory reporting responsibility and
it has traditionally been placed with broker. This will change
come January 2018, where the MiFID II require the seller to
report unless the buyer is a systematic internaliser. Reporting
can be outsourced if agreed by both parties, although this does
not remove the responsibility from the buy-side to accurately
and correctly report under MiFID II.
The big change:
Transaction reporting is still one of the most misunderstood
aspects under MiFID II. But for fixed income and OTC markets,
reporting is considered a greater burden than for those reporting in equities or more liquid markets.
Stricter requirements mean bonds and derivatives trades must
have a legal entity identifier (LEI), something which is completely new to the fixed income industry. Buy-side firms subject
to the transaction reporting rules should not execute a trade on
behalf of their clients who do not have a LEI in place, so without
a LEI fixed income trades could be doomed to fail.
The big struggle:
Firms have struggled to determine exactly what needs to be
reported and many are unaware of the potential penalties for
failures like double reporting. The buy-side face bigger problems with complying with reporting rules as they have not had
to deal with such requirements before.
Asset managers could well feel a fiduciary risk more acutely
than the sell-side, but where the sell-side can pay the fine and
back to business such a penalty could have a greater impact on