On May 29, the European Securities and Markets Authority (Esma) updated its guidance on the implementation of the revised Markets in Financial Instruments Directive (Mifid II), with sections targeting transparency requirements. One section focused on how some reporting platforms are making this data available to the public.

In particular, Esma criticized the fact that some of the platforms—which include Approved Publication Arrangements (APAs), Consolidated Tape Providers and trading venues—are publishing the data as static images, through specialized third-party systems such as Bloomberg Terminals, or in enormous databases that are difficult to conduct any systematic analysis on.

“Many APAs used to publish post-trade data in a way that made this kind of data basically useless, as the data was either only available in a data format that could not be used by third parties, or only available during a very short time period of a couple of seconds,” Markus Ferber, a German Member of the European Parliament and the vice chair of its influential Committee on Economic and Monetary Affairs, tells WatersTechnology. “Many of these practices applied by APAs when publishing post-trade data were at least against the spirit—if not the letter—of Mifid II.”

Under Mifid II, platforms such as APAs are required to publish information on the transactions that are reported to them soon after execution. However, while the regulation specified what firms must do, it was less specific on how firms should go about doing this. An article published by WatersTechnology’s sibling title, Risk.net, in February, found wildly divergent practices between APAs, including methods such as those mentioned by Esma.

“There has been a huge disparity in the formatting of data from the various venues and this has made it very difficult for regulators and industry participants to make use of the information,” says Virginie O’Shea, research director at research firm Aite Group. “One of the issues has been that there is some degree of interpretation by the venues about how to report—there is no industry-standard taxonomy for some of these items; hence, the continual updates from Esma with its Q&As.”

Under the revised guidance, published through a Q&A, firms must ensure that the data they publish is machine-readable, fully available to the public for at least 24 hours, that it should be able to be accessed and digested without the use of third-party software, and that it should be made available in broadly the same format as commercial data.

“It’s clearly a shot across the bow for those that either aren’t living up to the expectations of the regulators, or who may be actively trying to sidestep them,” says an operations executive at a tier-1 European bank. “It’s Esma saying that they are paying attention to what people are doing here and, through them, the NCAs are as well.”

Unintended Consequences 

WatersTechnology contacted a dozen major APA operators for comment on the revised guidance, most of whom either declined to comment or were unable to comment in time for publication, some owing to public holidays in their respective countries. The London Stock Exchange Group said that it was reviewing the guidance, while a Bloomberg spokesperson said that the company “welcomed” the news.

“We provide machine-readable, un-gated files that permit market participants to collect transparency data for the current trade date,” a Bloomberg spokesperson said. “We anticipate that extending the availability of this data from the current trade date to a 24 hour period will not require significant work on our part.”

Many of these practices applied by APAs when publishing post-trade data were at least against the spirit—if not the letter—of Mifid II.

Markus Ferber MEP, vice chair, Committee on Economic and Monetary Affairs.

Those who did respond, however, pointed out that while they would comply with Esma’s guidance, it may have unexpected consequences for certain sections of the market. On one extreme, it will solve the issue of some APAs making data available in unusable formats, such as images or providing it through terminals.

“All of those things have been hammered out and the guidance is stopping people from doing that,” says Mark Kelly, director of professional services at NEX Regulatory Reporting, which operates an APA.

However, the provision that data should be provided on the same basis as commercial data could cause problems for smaller firms or day traders, who may not have the technical sophistication or the specialist tools to process and analyze large quantities of data.

“Esma seems to be pushing us towards one size fits all, which says, don’t put in search criteria, don’t filter it anyway, just give a big data pipe available to anyone who wants it,” Kelly continues. “And that can be done, obviously we will comply, [but] we don’t think it is useful to some of the end users as the current offering.”

Esma did not respond to questions from WatersTechnology on how long APA operators would have to comply with the new rules, or whether it anticipated these problems when drawing up the technical standards for Mifid II.

“I think that this is additional information that firms will have to take into account when working out whether or not their current arrangements are compliant, and whether they may need to make a change,” says Michael Thomas, a partner in the financial services practice at law firm Hogan Lovells. “But just because Esma has put out something clarifying their position, it doesn’t necessarily mean firms need to jump to it immediately.”

Another impact from Esma’s updated requirements could also be an increase in consolidation among APA operators. Already a low-margin business, some say that being forced to spend additional resources on requirements that add little value to the bottom line, such as public dissemination of data, may force some operators to close their APAs entirely.

“Having to redo their architecture to meet all of these criteria could actually make the difference and hasten the consolidation of the APA space,” says NEX’s Kelly. “It might be that this isn’t worth doing on a commercial basis anymore if people have to re-engineer their whole systems.”

The criticism from Esma is the latest blow for Mifid II’s reporting platforms, which have had a difficult birth since the rules came into force on January 3, 2018. WatersTechnology previously reported that some APAs were failing to process trades due to technical glitches, while APAs and Approved Reporting Mechanisms, which handle trade reports, at regulators including the Hellenic Capital Market Commission and the UK’s Financial Conduct Authority also had issues on day one.

Additional reporting by Amelia Axelsen.