Mitigating the impact of MiFID II on the post-trade process
The Markets in Financial Instruments directive (MiFID II) will alter post-trade activities for a range of financial market participants.
Firms are now facing the challenge of adapting their middle- and back-office activities to comply with the changes required to post-trade processing by MiFID II from January 2018.
Understanding the impact on the post–trade process
MiFID II will affect several key areas of the post-trade process. DTCC is also working across these areas to minimize client impact.
The adoption of Legal Entity Identifier (LEI)
MiFID II will introduce the concept of ‘no LEI, no trade’. From 2018, Investment Management firms subject to MiFID II transaction reporting obligations should not execute a trade on behalf of their clients who are eligible for an LEI and do not have one. MiFID II will require parties involved in all financial instrument transactions to include the entity’s LEI when reporting to the competent authority. Additionally MIFID II mandates dual-sided reporting and therefore requires Investment Managers to report, for the first time, equity and fixed-income trades. The regulation covers issuers, investment firms and their clients, participants of trading venues and their clients, as well as brokers. Brokers will need to include the Investment Manager’s LEI in their reporting and Investment Managers must include an LEI for their underlying clients.
GMEI utility, a Global Legal Entity Identifier Foundation (GLEIF) accredited Local Operating Unit (LOU), is designed to provide a single, universal standard identifier to any organization or firm involved in a financial transaction internationally, thereby helping them to meet their MiFID II transaction reporting obligations.
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To find out more about GMEI, visit gmeiutility.org
ALERT also contains a field to allow Investment firms to add the LEI of their clients and share this with their broker counterparts. The LEI can also be enriched to CTM to help with reporting obligations.
To find out more about Omgeo ALERT, visit dtcc.com/alert
Unbundling of Research Costs
MiFID II will enforce the unbundling and transparency of payment for sell-side research. Payments using execution commission will be defined as an inducement and will be prohibited. MIFID II will therefore enforce strict separation between payment for research and payment of execution commission. Investment managers will be required to actively manage research budgets using an RPA (a Research Payment Account) or use their own P&L to pay for research.
CTM will add a new commission type for research costs to support the population of both a discrete segregated research amount as well as an execution commission amount.
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To find out more about CTM, visit dtcc.com/ctm
ARTICLE 59 - Under Section 4 of the MiFID2 Delegated Regulation: Reporting to clients, Investment firms are required to report essential information (approximately 16 data points) to their clients, If not included as part of the confirmation, then sent as a notice to the client. Whilst the interpretation of certain elements is still on-going, Omgeo CTM either already includes the required data points as part of the trade messages, or will incorporate any required additional items.
Get in to touch today to learn more about how we can help you to meet your MiFID II requirements.