Implementation of MiFID II and its associated regulation, MiFIR, has been postponed by a year until January 2018. Chris Pickles, co-chair of the FIX Trading Community's Reference Data Subgroup, shares his insights on the probable effects of the delay and the reasons behind the extension.
What will the ramifications of MiFID II's postponement be for MiFIR?
There are still questions about details that firms are just realizing they need to ask regulators. Firms simply hadn't realized the impact of moves such as the European Securities and Markets Authority's (ESMA) publication of reference data free of charge. Firms need to work out the interrelationships of MiFID II and MiFIR with the Alternative Investment Fund Managers Directive and Solvency II, as well as the UK's Market Abuse Regulation. The postponement gives all financial services segments time to work out what it means for their business models and to make changes. Thanks to ESMA, investment firms whose use of reference data is limited by licenses will be able to get that data license-free. All the contracts that control the use, re-use and redistribution of reference data throughout the data supply chain will need to change.
Was the postponement of MiFID II compliance by a year to early 2018 justified?
The postponement was very much justified due to the need for greater clarity on issues that MiFID II addresses. Some of the directions proposed under MiFIR and the draft technical specifications involve significant change for thousands of investment firms internationally. Take the proposed requirement to use ISINs to identify exchange-traded derivatives, when ESMA had previously made it clear that it recognized that ISINs were rarely used for derivatives. Changing central data management systems for universal banks that operate internationally is no minor task. So many other investment firm systems depend on those central data management systems.
What was the true cause of the postponement?
One of the key elements of content and timing that led to the postponement was the release of the final version of ESMA's proposed technical specifications, its recommendations to the European Commission, which decides whether to agree or dispute some or all of the specifications. If market participants think changes are still necessary, they must express that to the commission and the European Parliament, rather than to ESMA. Market participants did so, and as a result, the parliament considered the readiness of ESMA's report processing systems for implementing MiFID II, along with issues about reference data and instrument identification. It's better to allow more time so market participants and regulators get it right.