March 2018: Regulatory Watchdogs Show Their Teeth

Though some doubted the European Securities and Markets Authority’s (Esma’s) commitment to enforcing its own deadlines, having already delayed Mifid II for one year prior to its eventual go-live date, and also having more recently granted a six-month grace period for compliance with Mifid II’s Legal Entity Identifier (LEI) requirements for firms unable to comply in time, Esma is already starting to demonstrate that it’s not just all bark and no bite.

For example, Esma has said it will investigate some Approved Publication Arrangements (APAs)—the bodies designated to provide trade reporting for compliance with Mifid II’s transparency requirements—after lawyers and one of Mifid’s architects warned that APAs were not adhering to the spirit, and possibly even the letter, of the law.

On another transparency issue (though not Mifid-related) Esma is also looking into how credit rating agencies set their fees, after years of complaints by banks and investment firms forced to buy ratings to support their responsibilities to investors that the fees are too high and subject to increases without any justification.

And while we’ve made a big deal in these pages about firms not being ready for Mifid II and the six-month LEI grace period, sometimes regulators need a break, too: Esma itself has also required a grace period for another data-related regulatory issue, delaying the implementation of the double volume cap on dark pool trading—a calculation that determines the levels of acceptable trading activity off lit venues, and suspends trading in securities that exceed strict limits—until it had a sufficiently complete and accurate 12-month dataset on which to base its calculations.

The moral of all this? Data doesn’t discriminate, and it doesn’t do you any favors. Well-managed data is a rising tide that lifts all boats, while poor-quality data has a negative impact on all parties associated with it.

Data is the fuel not just for trading, but also for regulatory compliance. Take care of your data, and compliance will take care of itself. Take your data for granted, and you might just feel those teeth.