Opening Cross: Rules of Engagement

This Tuesday, Sept. 27, Inside Market Data—along with stablemate Inside Reference Data—will host the European Financial Information Summit in London, and annual gathering of some of the sharpest minds in market data to address issues affecting the industry. The event will touch on a broad swath of topics, but sure to be among them will be regulation, and how initiatives to improve transparency and market security will impact the world of the data professional.

The first iteration of the Markets in Financial Instruments Directive four years ago changed the landscape of European equity markets, prompting new trading venues, market fragmentation, increased data volumes and use of smart-order routers, and calls for consolidated tapes of pan-European data—calls that have pressured exchanges in the region to unbundle post-trade data. One of the issues being addressed in the upcoming changes is the creation of a pan-European best bid and offer—something omitted from the initial MiFID rules.

However, the European Securities and Markets Authority, the body responsible for implementing the European Union’s rules, is keeping busy in the meantime, last week issuing draft standards for new regulations governing rating agencies. The US Securities and Exchange Commission has already reformed the role of rating agencies, allowing investors to substitute other criteria as benchmarks instead of credit ratings—though industry association Sifma recently voiced concerns about the creation of a governing Credit Rating Agency Board.

MiFID demonstrated regulators’ power to re-shape markets, which is why market participants invest substantial amounts in processes and people to address such initiatives, such as the London Stock Exchange’s hire of Denzil Jenkins—currently director of regulation at multilateral trading facility Chi-X—as head of compliance and regulation.

Most of the initiatives underway aim to increase transparency, such as the creation of swap execution facilities to shift trading of some over-the-counter derivatives onto centrally-cleared platforms, which should increase transparency and improve pricing, while also reducing risk to counterparties. SEFs—along with the impact of other regulatory activities on market areas—were one of the areas discussed in IMD’s recent Latency webcast, a summary of which appears in this week’s issue. A related issue that may have implications for the future is the data that these venues will generate, especially if a move to exchange-like platforms makes more liquid OTC derivatives attractive to high-frequency traders.

The industry is already battling data volumes—not just in North America, but also in emerging regions where smaller volumes in comparison still represent high rates for local markets, such as India, where Issaquah, WA-based embedded in-memory database vendor McObject last week announced deals with the National Stock Exchange of India’s IT subsidiary and Financial Technologies of India, both of which will integrate McObject’s eXtremeDB database into their products to help handle large volumes of data at lower latency.

These capabilities aren’t just to support local players: Western traders are still seeking out data on opportunities in emerging markets like India. It’s no coincidence that as the Dow Jones Industrial Average fell nearly 400 points last Thursday, and Europe braces for the fallout of a potential Greek default, business sentiment in China rebounded in September, according to Market News International’s China Flash Survey.

In short, market participants in Europe and around the globe must be aware of a plethora of international initiatives that could affect their business. But how do these affect the world of market data, and how can one apply that knowledge to one’s advantage? I can’t answer that: I’m no expert. But fortunately, you’ll find plenty of experts at Tuesday’s event—and hopefully, we’ll find some answers there, too.