Important report reveals changes for EMIR regulation surrounding REFIT RTS

Changes are most certainly in store. Cappitech looks closely at the proposed changes to EMIR regulation and reporting

Good news or bad news?

Could it be that the bungling European regulators are so disorganized that they would waste an absolute fortune in designing and implementing an incredibly bureaucratic and vague framework aimed at costing OTC derivatives and regulated exchanges an equally absolute fortune in redesigning their entire trading topography and technological infrastructure and then abandon some important key tenets of said bureaucratic and vague framework?

Or could it be that after a fraught start, some aspects of MiFID II have become a millstone around everyone’s neck including the bogged-down European Securities and Markets Authority (ESMA) that it’s own orchestrator is looking to hang parts of it up forever?

Either way, the bizarre potential U-turn that is being considered by ESMA – namely the possible cancellation of MiFID II’s ‘Best Execution’ policies and retraction of RTS27 and RTS28 reporting procedure, all of which are little understood by regulator and brokerage alike.

The Brussels bureaucrats, many of whom do not understand the operational methodology of electronic trading, and cannot tell their matching engines from their trade repositories, committed several years of planning toward separating the different type of execution facility and platform into several categories, including Market Maker (b-book brokerage), Regulated Marketplace (derivatives exchange with central counterparty), and OTF (organized trading facility) and then stipulating how these entities should report their trades, using LEIs and specialist trade reporting mechanisms.

From a technological perspective, this was a major undertaking and most brokerages went to huge extents to listen carefully to specialist consultancy firms such as Point9, Cappitech and TRAction FinTech, who in turn went to great lengths to explain to the entire industry how these rulings should be adhered to, and who came up with very important solutions for meeting the deadline to implement these requirements.

In 2017, FinanceFeeds held a conference in London for brokerages to be able to speak to knowledgeable regulatory technology specialists and prepare their brokerages for the impending huge change in modus operandi.

This was followed up by the regulatory technology specialists themselves.

ESMA and the European Parliament had stuck firmly to the line that customer protection was vital and that many complaints against OTC FX firms had related to ‘poor execution’ practices, slippage and not acting in the best interest of customers, so why now the sudden backtracking?

Surely this is akin to installing streetlamps, then insisting all cars have no headlamps, and then removing the streetlamps? That may well sound banal, but looking at the same thing in a different context shows up the odd nature of this decision.

The capital I in MiFID stands for Infrastructure, and indeed the requirements for brokerages to stick rigidly to very structured infrastructure categories and ensure that best execution is carried out, as well as be able to demonstrate exactly how a price was decided and trace the entire order trail, is vast and very clear.

Dissenting voices in Western regions have several times displayed their concern about this, however – perhaps their lobbying didn’t work , OTC derivatives companies are still prospering despite having had to be coerced into complying with intentionally expensive, bureaucratic and technologically complex rules aimed at befuddling and wearing them down, so perhaps the exchange lobby has had to give up, the only result being an expensive white elephant now left in the hands of the government.

Many have that whilst companies in the world’s largest financial center – London – and branches of those firms in Europe along with native European firms, will have to organize themselves as specific entity types and make massive attempts to keep themselves that way and report specifically, others do not.

The dissent and strong beliefs relating to the RTS and best execution standards have been very much aired in public recently, one such example being an angry tirade between the prime of prime brokerage titans which was covered extensively by FinanceFeeds.

Cappitech, one of the electronic trading industry’s benchmark regulatory technology companies today brought to light some important potential changes that may come about following  ESMA’s publication of its Final Report on Technical Standards (RTS and ITS) for EMIR REFIT.

Cappitech said on the matter “The report is a culmination of updates to EMIR that were initially proposed in a Consultation Paper by ESMA in March. The Final Report now moves to the European Commission (EC) where it will be debated. Once published by the Commission and published in the Official Journal, it triggers an 18 month period to going live.”

“Effectively being called by many as EMIR Level 3, the Final Report adds a host of changes to the regulation. According to ESMA, the update is meant to align EMIR with agreed upon global standards and improve data quality. The coming changes were discussed last month in Cappitech’s webinar titled EMIR Present & Future which was presented along with REGIS-TR” said Cappitech.

Cappitech listed these key changes in its blog in detail.

There is definitely change at government level on the horizon, hence keeping abreast of changes via those in the know at regulatory reporting specialist companies is worthwhile indeed.

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