MiFID II to Boost Data Value
Tom Doris, chief executive of OTAS Technologies, said the ability to mine trading data created by new regulations will become financial firms’ most valuable asset.
MiFID II, the regulations coming into force in the European Union at the start of next year, creates new transparency and reporting requirements for trades across asset classes, not just equities.
Doris spoke at a RegTech Forum event in London this week on regtech and the buyside. He said: “MiFID II can be a catalyst as firms will be creating a huge database of post-trading activity. Few people appreciate that the ability to mine this data will become a firm’s most valuable asset.”
OTAS was founded in 2011 to analyse market data and highlight actionable information for equities trading to fund managers in an easily digestible visual format and was acquired by Liquidnet, the institutional trading network, this year. The software analyses changes from the normal pattern in data such as insider transactions, short interest, options and credit default spreads and automatically highlights the most relevant signals for stocks in their portfolio for review.
Mark Pumfrey, head of Liquidnet Europe, Middle East and Africa, told Markets Media in July that the acquisition of OTAS adds a new dimension to sourcing natural liquidity as OTAS alerts can be tied to indications of liquidity in the Liquidnet pool based on past data and the member’s own filters. The combination of data from Liquidnet and OTAS also allows them to meet the MiFID II requirement for firms to be able to demonstrate that they taken sufficient steps to achieve the best execution for their clients as audit trails will be automatically generated for all trades.
Doris added: “Firms with best data will emerge as the winners and this is the new frontier.”
He continued that the performance of artificial intelligence is driven by the availability of high-quality data. “It is better to have good data and poor analytics than good analytics using poor data,” said Doris.
Robin Mess, chief executive of smart data and analytics provider big xyt, agreed. Mess told Markets Media: “Data and analytics are becoming more important for the global trading community and the quality of data is key.”
Big xyt today announced a partnership with exchange Bats Europe which will allow it to use high quality tick data in a new hub for a variety of use cases including algo development and testing.
“Bats has been extremely supportive to the trading community in providing data,” added Mess. “However, previously large data sets were supplied on hard disks to the end clients, which then had to be integrated and used for algo testing or other analytics.”
Mess continued that the big xyt hub allows access through a single API which clients can easily integrate into their own processes, such as liquidity analytics. The convenient access will enable faster time to market for new products and also allow non-programmers to use the data with just two lines of code.
“We are constantly expanding our partnerships and are in discussion with a number of other exchanges and data vendors,’ added Mess. “We are already connected to more than 100 venues globally across all asset classes which are traded on a venue.”
In July big xyt also launched Liquidity Cockpit to give market participants more information on dark and lit trading activity. MiFID II places double volume caps on dark pool trading with exemptions for Large In Scale (LIS) trades above a certain size as specified by the European Securities and Markets Authority.
The inaugural research paper from Plato Partnership, the not-for-profit industry group representing asset managers and broker dealers, examined the potential impact of double caps on dark trading and the closure of broker crossing networks under MiFID II. Brokers will not be able to cross internal flows without registering as a systematic internaliser.
Professor Carole Comerton-Forde, Professor of Finance at the University of Melbourne and author of the paper, said that in order for the buyside to be ready for MiFID II, they should look for trades which are eligible for the LIS or order management facility waiver. In addition, the buyside will need to choose how to achieve the best possible trading outcomes given the potential fragmentation of block trades across multiple venues.
Comerton-Forde added that MiFID II will provide a wealth of new data which will assist with evaluation of trading outcomes. “The buyside should consider the most effective ways to exploit these data to their advantage,” she said.
Fixed income managers need to show more evidence of best execution.
The exchange will be able to submit transaction reports for clients to all relevant regulators.
Trading venues need to make pre- and post-trade information available under the new rules.
The Swedish technology provider has made an acquisition and raised funds for growth.
Message specifications have been enhanced for MiFID II.