Enhanced transparency is the bedrock of the incoming MiFID II legislation, set to
come in to force in January 2018. It is
because of this that a whole heap of
new reporting and data requirement
rules will come into effect, forcing
widespread changes among European
MiFID II presents a significant compliance challenge for all firms within
the scope of the regulation. Rules over
transaction reporting and best execution are set to dramatically alter the
way firms trade in order to comply.
Within the fixed income world
especially, some of these new rules
are completely new to the industry.
It is now up to firms to put in place
procedures so they are able to provide
reliable, clean data to regulators, while
also maintaining the high standards
set for trading fixed income products.
As arguably one of the more complex
components of MiFID II, the transaction reporting requirements go many
steps further than the original MiFID
rules, bringing in a wide scope of
different reporting fields, instruments,
and investment firms responsible for
Whereas MiFID I covered equities
and some equity exchange derivatives
and only 24 data fields to report on,
MiFID II engulfs nearly the entire
universe of financial instruments and
requires a far more comprehensive 65
MiFID II has expanded the scope
of the transaction reporting rules to
include financial instruments that
also fall under the traded on a trading
venue (TOTV) regime.
It is here where this new concept of
Legal Entity Identifiers (LEIs) for the
fixed income world will cause major
challenges to the industry, according
to panellists. The regulation states
buy-side firms subject to the transaction reporting rules should not execute a trade on behalf of their clients
who do not have an LEI in place.
Just over half a million LEIs have
been issued globally, however a large
portion of fixed income instruments
are absent from this.
One panellist at The TRADE and
ICE Data Services’ Overcoming
MiFID II Data Challenges event
highlighted that around 90% of sovereign issue bonds do not have an LEI,
and between 50-75% of all corporate
bonds also do not have an LEI.
“These are not insignificant numbers, and it is about the creation of
them [LEIs]. It is a massive implementation problem, and some people have
to go out, create them, and then apply
them to the fixed income world,” said
David Bullen, founder, Bullen Management.
“There has never been a require-
ment to have the LEI at the time of the
trade, but after January 2018, you need
to know it exists before executing a
trade. Otherwise that transaction will
fail and you will get penalised.”
The LEI mandate is a global one,
“It is a massive implementation
problem, and some people have
to go out, create them, and then
apply them to the fixed income
DAVID BULLEN, FOUNDER, BULLEN MANAGEMENT
“There are still some firms that
are doing gap analysis which is a
ADRIAN GILL, REGULATORY COMPLIANCE
SPECIALIST, NEX ABIDE FINANCIAL.