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David Woolcock 06-Oct-2017 12:31:33 5 min read

A hash of regulation for breakfast


Eurobase recently hosted an informative breakfast briefing with some distinguished speakers and panellists. The discussion around MiFID II was wide ranging and engaging, as you would expect. During the panel session, one of the first topics I asked the panellists to address was the subject of ISIN’s for FX. Regular readers will recognise this as a theme of mine and one I promised, just before the summer, I would return to. 

What was clear in the responses was that ISIN’s are going to be used in derivatives and FX but that details of the exact mechanics are thin on the ground, especially for FX. The ISIN is in effect the Unique Product identifier (UPI) and they have worked well for equities and Fixed Income. When it comes to the derivatives world and FX it is a bit more complicated as many more ISIN’s are going to be required going forward.  

No longer will ISIN’s just be pre-allocated but for derivatives and FX they can be created “on the fly” in real-time with the attendant demands this will make on trading systems. Another complication is that they will be based on a maturity date. In practice, what this means is that if you do a two-week swap today it will be given an ISIN for a two-week swap today. In one weeks’ time, that same ISIN will now be the ISIN for a one-week swap. The “go live” date for “The Association of National Numbering Agencies’ Derivatives Service Bureau (ANNA DSB)” service was the 2nd of October and Eurobase has already started testing against ANNA DSB to ensure your compliance. 

Another interesting aspect we discussed was the issue of Legal Entity Identifiers (LEI’s) which caused a slight splutter into the coffee. The bold statement was “Investment firms shall not provide a service that would trigger the obligation of an investment firm to submit a transaction report….prior to the legal entity identifier code being obtained from that client”. In other words, “investment firms cannot trade with an organisation if the organisation does not have an LEI”! This means that if you do not have this important piece of information for all of your clients, you need to get into contact with our friends at the London Stock Exchange Group (LSEG) who are a ‘Local Operating Unit’ for assigning LEIs and can help facilitate this process.  

Further discussion ranged around evidencing best execution, trading transparency and the thorny issue of unbundling research. Our presenters concluded with a talk around a subject as murky as the coffee, namely trading in the dark and we finished with another warning ringing in our ears “the SI regime will be patrolled and enforced”. Speak to us if you want to avoid sniper fire from one of these patrols and we can show you how you can effectively deploy an ability to monitor your SI status. I will no doubt be returning to these subjects in subsequent blogs but will leave you for now with the words of Mark Steward, Director of Enforcement and Market Oversight at the FCA – 

I should add that MiFID II will further enrich our view of the market as we will capture even more data. Currently we capture around 20 million transaction reports per day and we estimate this will increase under MiFID II to around 30-35 million transactions, in excess of 50 million orders per day or a total of over 1 trillion data points per year……………. “This means we have no intention of taking enforcement action against firms for not meeting all requirements straight away where there is evidence they have taken sufficient steps to meet the new obligations by the start-date, 3 January 2018. Many firms that have been working well to prepare for next year and they should feel assured and confident that they can continue to work with us to meet the starting line. At the same time, we cannot create a floor for compliance below the required MiFID II standards and so our disposition is likely to be different where firms have made no real or genuine attempt to be ready or where key obligations are deliberately flouted.” 


David Woolcock

David Woolcock is an independent consultant and Director, Business Consulting at Eurobase. In addition, David is Chair of the Committee for Professionalism at ACI – The Financial Markets Association as well as Vice-Chairing the ACI FX Committee. He is also a member of the Market Practitioners Group for the Bank of International Settlement's FXWG that wrote the FX Global Code.