AIMA Dublin
The Impact of MiFID on the content, costs and uses of market data
24 October 2007
“The essential guide to screwing up your business” Jeff Randall
• Keep reminding your customers how lucky they are.
• Stick to a proven formula. Assume infallibility.
• Don’t meet your customers
• Believe your own story. Isolate yourself.
• Never take any time out to think
• Indulge in continuous use of blackberries and mobile phones
• Fall in love with administration and bureaucracy
• Be afraid of the future. It’s uncomfortable and will show the world how little
you know
2 MiFID & Reuters Response
Key issues – exchange traded markets
• The proportion of volume traded electronically will continue to grow rapidly
• Regulatory change will be a key driver of client investment and opportunity in ‘08 and ‘09
• Efficiency and risk management will drive even greater adoption of STP,
• Algorithmic trading has created new trading opportunities, resulting in volume growth that will
outstrip headcount growth
• Banks and brokers will seek to monetize more aggressively their OTC prices and data
• Growth in the volume of market data will mean that it will no longer be possible to broadcast
everything
IDN growth 3 month trended traffic rates since 1987.
100000
90000
Updates per Second
80000
70000
60000
50000
40000
30000
3 month trend (updates
per second)
20000
10000
0
Jan 1987 Jan 1988 Jan 1989 Jan 1990 Jan 1991 Jan 1992 Jan 1993 Jan 1994 Jan 1995 Jan 1996 Jan 1997 Jan 1998 Jan 1999 Jan 2000 Jan 2001 Jan 2002 Jan 2003 Jan 2004 Jan 2005 Jan 2006
01 May 1987 - 28 Jun 2006
3 MiFID & Reuters Response
September 2006 – Peak at New York Open
Reuters receiving
61,000 messages per second
4 MiFID & Reuters Response
September 2007 – Peak at New York open
Reuters receiving
132,400 messages per second
5 MiFID & Reuters Response
Exchanges were “institutions”
6 MiFID & Reuters Response
Old Markets Learn New Tricks - Profits
7 MiFID & Reuters Response
MiFID
8 MiFID & Reuters Response
Markets in Financial Instruments Directive
Increase market efficiency
through increased transparency
and competition
MiFID
Objectives
MiFID Objectives
Provide protection
for the retail investor
9 MiFID & Reuters Response
A common regulatory
framework across Europe
Markets in Financial Instruments Directive
01 Apr
2004
01 Jul
2004
01 Oct
2004
01 Jan
2005
01 Apr
2005
01 Jul
2005
01 Oct
2005
01 Jan
2006
01 Apr
2006
01 Jul
2006
01 Oct
2006
01 Jan
2007
01 Apr
2007
01 Jul
2007
01 Oct 01 Nov
2007 2007
MiFID Level 1 passed by European Parliament
Extended Consultation on implementation measures
MiFID Level 2 Implementation measures
finalised and published by the Commission
Deadline for Transposition
of MiFID into local law
9 months allowed for
implementation
Deadline for MiFID
implementation
Most MiFID obligations apply to all financial instruments:
Data retention and transaction reporting,
Client Classification,
Conduct of Business rules,
Best Execution within Investment Firms,
Distribution of research and advice,
Client order handling rules,
10 MiFID & Reuters Response
7 days to go.
Status of Transposition
As at 1st October out of 27 states:
• 15 states had notified the European Commission that they have
transposed Level 1,
• 13 states had notified the European Commission that they have
transposed Level 2.
The following states had not notified transposition of Level 1 or 2:
•Czech Republic
•Estonia
•Finland
•Hungary
•Italy
•Netherlands
•Poland
•Portugal
•Slovenia
•Spain
•
•
•
Greece having notified of transposition of Level 1 but not Level 2.
Cyprus having notified of only partial transposition of Level 1.
Latvia having notified of only partial transposition of Level 1 & 2.
11 MiFID & Reuters Response
Fragmentation and Consolidation
• MiFID Transparency obligations will result in fragmentation of equities
trade data
• Price fragmentation may occur but not initially
• Professionals will need consolidated pricing & trade data for each stock
• Will “Dark pools of liquidity” increase the importance of post trade data?
• Access to complete market data will be more expensive
• Reuters will be a publication venue for trades and prices, but not an MTF
LSE
Deutsche
Bourse
Euronext
Paris
.L
.PA
.DE
Reuters
Consolidated View
based on all venues
12 MiFID & Reuters Response
OMX
Stockholm
.ST
.M
BOAT
New Data feeds
•
•
•
Venue
Fee in
Euros
Delayed
data
Comment
LSE
5.17
FOC after
15mins
The OTC trade reports will automatically be available in the LSE Domestic or
International product. The LSE OTC trade report service will carry both UK
and European OTC trade reports and will become feeliable (GBP3.50 in April
2008)
Euronext
7
FOC after
15mins
Initially free, becomes feeliable 01-Jan-2008
Deutsche
Boerse
8
FOC after
15mins
Initially free, becomes feeliable 01-Feb-2008. There is also a EUR3 per user
bpm fee for snapshot data, and an EUR1 user per user pm fee for non-pros
OMX
N/A
FOC after
15mins
Free for at least 6 months, at which point the commercials will be reviewed
Wiener
Börse
10
FOC after
15mins
Data will be free until 01-Jan-2008
Irish Stock
Exchange
N/A
FOC after
15mins
MiFID data will be added to the existing Irish SE Level 1 service
BOAT will charge €120 per person per month with free access to 2hour delayed data
Chi-X, Plus Markets & Xontro data will be accessible free of charge
Borsa Italia, Vienna Stock Exchange, Bratislava SE have yet to announce charges
13 MiFID & Reuters Response
Reuters as a publication venue
“.r” RIC for all publication to a
Reuters venue
Reuters Trade Publication:
• Leverages the technology
behind Reuters Trade
Notification Service
• Compliance with FSA’s Trade
Data Monitor functions and
MiFID Level 2 transparency
obligations
• Publication via a FIX enabled
API, or via a GUI
• Minimal cost for publication
14 MiFID & Reuters Response
Consolidation
From 1st November the “.x” RIC will provide on existing Reuters desktops:
• Initially in 1,200 of the most
liquid European stocks
• Will expand to cover all stocks
defined by CESR as eligible
• Best bid/offer from multiple
venues & all trades as they
happen
• Separate display of all recent
trades
• Access cost dependant on the
cost of contributing feeds.
Day one coverage will cover 13 venues including LSE, Euronext, Deutsche
Bourse, OMX, Virt-x, Chi-X, Boat & Reuters.
15 MiFID & Reuters Response
Best Execution
16 MiFID & Reuters Response
Best Execution
• Applies across all asset classes, although application to dealer markets not as
clear as for equities.
• Take into account factors other than price (latency, likelihood of execution,
settlement costs…..)
• Firms to establish an execution policy,
• Evidence compliance with that policy,
• Validate that policy at least annually.
Beyond Equities
“whether the client legitimately relies on the firm to protect his or her interests in
relation to the pricing and other elements of the transaction…”
Commission Working Document – ESC-07-2007
Status of portfolio managers?
17 MiFID & Reuters Response
Best Execution – RDTH
In all asset classes, Reuters also offers Reuters DataScope Tick History
(RDTH) for compliance and regulatory requirements
• RDTH will allow firms to retrieve all underlying tick by tick data to:
• Determine and establish best execution venues.
• Maintain compliance on a daily post trade basis
• Prove compliance up to 5 years after the trade should regulatory agency probes
come into effect
• RDTH will allow firms to validate the quality of execution provided by the venues
within their policy by:
• Comparing the tradable market of the venue chosen versus what could have
been achieved across all other venues.
• RDTH will also store the .x RIC composite for future comparison
The focus of RDTH is to provide firms access to all underlying tick by tick
data across all asset classes on a global basis to assist compliance officers
with daily comparative market level intelligence by venue to achieve
regulatory compliance.
18 MiFID & Reuters Response
Best Execution – RTCA
In Equities Reuters will offer Reuters Transaction Cost Analysis (RTCA)
• RTCA will allow firms to evidence compliance with their execution policy by:
• reference to benchmarks calculated using the price & trade data from the
execution venues identified in that execution policy.
• this will be facilitated by choosing the relevant RIC identifiers in RTCA for the
price & trade data from those venues.
• RTCA will allow firms validate the quality of execution provided by the venues
within their policy by
• comparison of the execution quality of the venues chosen versus what could
have been achieved across all venues.
• this will be facilitated by comparison against benchmarks calculated using the
composite ".x" RIC.
Although the initial focus for RTCA is on Equities coverage of other asset
classes would be possible if comparative trade and pricing data were to be
made available.
19 MiFID & Reuters Response
Reuters Transaction Cost Analysis
Hosted Infrastructure
RTCA Server
& Database
TCA
Report
Client
Download pdf Report
via Web
5
End of Day Prices,
Raw Trades Data
& Benchmarks
2
1
Web & FTP
Servers
We
b
or S
e cu
re F
TP
U
plo
ad
Reuters
Tick History
• Historical hosted Transaction Cost Analysis Service
• Broad range of Benchmarks
• Historical Trade and Order Analytics
• Scenario Analytics
20 MiFID & Reuters Response
TCA Report
4
3
Order &
Trade Data
Standardised
Trade Report
Reuters Transaction Cost Analysis – Summary and Drill Down Reports
• Summary Cost analysis
• Segmentation Analysis
provides
• Drill Down to carry
out analysis
• Trader Performance
• Volume
Consumption
• Fill Analysis
• Individual trades and
orders
21 MiFID & Reuters Response
22 MiFID & Reuters Response