Regulatory Advisory Services 7th PwC MiFID II Breakfast · Regulatory Advisory Services 7th PwC...

Regulatory Advisory Services

7th PwC MiFID II Breakfast

Markets and trading re-defined?

Regulatory Advisory Services

25 April 2017

PwC

25 April 2017

1 MiFID II update 3

2 Mapping of key MiFIR impacts 5

3 FX derivatives under MiFID II / MiFIR 9

4 Data and Reporting Challenges 15

5 Contacts 22

Agenda


Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts

MiFID II updateAgenda

PwC

25 April 2017

MiFID II update


1 MiFID II update Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts


PwC

25 April 2017

MiFID II / MiFIR TimelineRTS published in OJ, Q&As are ongoing


1 MiFID II update

Q1 Q2 Q3

2014

S1 S2

2015

S1 S2

2016

Q1 Q2 Q4Q3

2017

Q4

*Possibility of extension**ESMA guidelines: Transaction reporting, order record keeping and clock synchronisation

2018

Jan

LE

VE

L 1

LE

VE

L 2

LE

VE

L 3

Entry into force: 2 September 2014

Delegated Acts

ESMA RTS

ESMA ITS

ESMA guidelines**

3 Jan 2018Application Date

Publication of:• 2 delegated regulations • 1 delegated directive (to be transposed)

1st batch 2nd batch

1st batch 2nd batch*

Transposition period (national level) Deadline: 3rd July 2017

Publication in the OJ

Draft Final Version

ESMA Q&As

1st Version Update



PwC

25 April 2017

Mapping of key MiFIR impacts


2 Mapping of key MiFIR impacts Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts


PwC

25 April 2017

RTS regulating the entire value chainRe-defined trade activities trigger compliance duties


2 Mapping of key MiFIR impacts

RTS 1RTS 2

RTS 23**RTS 27**

Safekeeping / Custody

Trade internalisation/ Dealing on own

account

Trading venue activities

11 additional RTS

Del. Directive

07/04/2016

Del. Directive

07/04/2016

RTS 22 RTS 28

RTS 22 RTS 28

RTS 24RTS 25

RTS 24RTS 25

RTS 1RTS 2RTS 4

RTS 27

1

Trade routingRTS 22 RTS 28

Del. Directive

07/04/20162

4

5

Del.

Directive 07/04/2016

Execution on venueRTS 24*RTS 25

Del. Directive

07/04/2016

RTS 22 RTS 28

3

• Segregation of assets & due diligence requirements on firms performing safekeeping activities

• RTS 22: Transaction Reporting• RTS 28: Publication of top 5 execution venues

* Indirect requirement** In case of an SI-classification

• RTS 24: Record Keeping for Trading Venues• RTS 25: Clock Synchronisation

• RTS 1/2: Pre- and Post-trade Transparency

• RTS 23: Reference Data• RTS 27: Reporting on Ex. Quality

• Requirements on organisation, non-discriminatory access, reporting etc.

All financial

instr.

Equities

Equities ETDs

DerivativesFixed

Income

DerivativesFixed

Income



PwC

25 April 2017

Key MiFIR ImpactsRe-definition of ‘specific activities’ can create collateral damage


2 Mapping of key MiFIR impacts

1 2 3 4

RTS 6:

Organizational requirements of firms engaged in

algorithmic trading

Algorithmic Trading

Market Maker Benchmarking Commodity Derivatives

RTS 8:

Requirements on market making agreements and

schemes

RTS 16:

Access in respect of benchmarks

RTS 20 & 21:

Application of position limits to

commodity derivatives

5

Clearing

RTS 15 & 26:

Requirements on clearing obligation and clearing access

Non-exhaustive list of special cases



PwC

25 April 2017

FX derivatives under MiFID II / MiFIR


3 FX derivatives under MiFID II / MiFIR Data and Reporting ChallengesFX derivatives under MiFID II / MiFIRMapping of key MiFIR impacts


PwC

25 April 2017

FX derivatives under MiFID II / MiFIRIncreasing regulatory scrutiny represents major business impact


3 FX derivatives under MiFID II / MiFIR

MTF / OTFs for FX Derivatives

SIs for FX derivatives

PRIIPS KIID for retail investors

EMIR Collateral requirements

Post-trade transparency

Transaction reporting

ISINs for FX

Best Execution for OTC products

Disclosure of costs and charges

Other regulatory initiatives

Client / Investor protection

Changes in market structure

Reporting and Publication

Product attributesNew EMIR reporting

Costs

Income

Triggers

FX Business

Triggers

Higher costs due to additional regulatory requirements

Pressure on margins due to more price transparency and additional trading venues



PwC

25 April 2017

• Active management of the FX trading books and currency risks;• Direct access to several liquidity providers, often outside of Luxembourg.

FX derivatives under MiFID II / MiFIRFX business is of major importance to investment funds



Two major business models can be observed on the Luxembourgish market:

Back-to-back trades / Micro-hedging

Active management / Macro-hedging

• Client trades are effectively mirrored to the market side to hedge with a single liquidity provider;• The bank is only exposed to currency risks for the instance of booking/transiting (no open positions);• The scenario is often observed in Group settings.

Bank Liquidity Provider

Client 1

Client 2

Client 3

Bank

Liquidity Provider 1Client 1

Client 2

Client 3Liquidity Provider 2

1

2

Potential SI class.

Potential trading venue class.



PwC

25 April 2017

FX derivatives under MiFID II / MiFIRGranularity of the definition of FX contracts



Currency PairMaturity Bucket

Contract TypeContract Type

Maturity Bucket

Currency Pair

Examples:• FX Forward • FX Options• FX Swap

Deliverable >< Non-deliverable

• Up to 1 week• 1 week to 3 months• 3 months to 1 year• Afterwards: Yearly rhythm

Examples:• EUR/USD• EUR/CHF• GBP/JPY



PwC

25 April 2017

Details to be reported in transaction reports65 data fields including client & decision maker identity


4 Data and Reporting Challenges

Primary pain points

Extension of the accuracy requirements

• Specific time of every reportable event

• Accuracy dependent on the type of trading activity (High-frequency trading, electronic access to a trading venue, etc.)

Reporting of employee identifying information

• Responsible person or algorithm for investment decision

• Responsible person or algorithm for execution

Additional execution details

• Partial executions need to be reported individually

• Information of partial executions must be provided down-stream to client investment firms.

Extension of client information

• Natural person: Name, date of birth, national identifier

• Legal entity: LEI

• Identification of the person who makes the investment decision

Extension of instrument details to be reported

• New ISINs and underlying instrument codes

• Complex trade identification

• Waiver & OTC post-trade indicator

Client information

PartialExecution

Investment decision and

executionwithin firm

Financial instrument

Time stamp

Client strategy

Reporting of client strategy

• Identification of short selling

• Identification of hedging with commodity derivatives



PwC

25 April 2017

Transaction Reporting Business ModelsWhat are the advantages of reporting consolidation?



• Significant overlap in reportable information between transaction reporting and post-trade transparency allows for re-use of data

• Overlaps include execution details and OTC post-trade indicators

• Consolidation of transaction data facilitates the monitoring of systematic internaliser thresholds

• Transaction reporting includes trading capacity for identification of internalised transactions

• Top 5 trading venues: Transaction reporting includes trading venues and OTC counterparty information

• Quality of execution (SI only): Time stamping of transactions allows for identification of concerned transactions and extraction of required details (quantity, price, etc.)

• Overlaps exist between regulatory reporting regimes, and the same transaction may be reportable under multiple regulations

• Alignment of regulatory reporting regimes is increasing

Systematic Internaliser

Other Regulatory ReportingBest Execution Publications

Post-trade Transparency

Consolidated

data sourcing and re-use



PwC

25 April 2017

Transaction Reporting Business ModelsSynergy potential depends on reporting alignment


4 Data and Reporting Challenges

Synergy Strength HighLow MediumLowHigh Medium

Other Regulatory Reporting

Post-trade TransparencySystematic Internaliser Best Execution Publications

• Large data overlap between monitoring of systematic internaliser thresholds and the preparation of the best execution publications

• But additional data is required for both topics

Lack of alignment between regulatory reporting regimes significantly reduces synergy potential, but this may change with time

Synergy potential between post-trade transparency and transaction reporting is reduced due to the timing



This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon theinformation contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracyor completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers, Société coopérative, its members,employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, inreliance on the information contained in this publication or for any decision based on it.

© 2017 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers, Société coopérative, which is amember firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Contacts

Olivier Carré PwC Luxemburg, Partner, MiFID II Leader

2, rue Gerhard Mercator B.P. 1443 L-1014 Luxembourg

Phone: +352 49 48 48 4174 Email: [email protected]

Join us on www.pwc.lu/mifid or www.mifid2.lu

http://www.pwc.lu/mifid

http://www.mifid2.lu/

Regulatory Advisory Services 7th PwC MiFID II Breakfast · Regulatory Advisory Services 7th PwC...

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