At the end of the first day of MIFID II implementation, Harps Sidhu, Head of Capital Markets Consulting and MiFID II, KPMG UK says:
“We have reached the implementation date but full MIFID II compliance will be a journey not an event. There is a range of readiness across different firms and it is uncertain for which areas - or for how long - regulators will accept on-going implementation.
“Transaction and trade reporting are two of the critical areas that firms are focusing on getting right from day one. There are differing views on territorial scope for trade reporting in the market already and we wait to see how different participants as well as venues and service providers perform in terms of reporting. Any immediate issues should come to the surface quickly as the regulator will be able to compare transaction reports from both the buy side and the sell side, as well as aggregate trade reports with other data such as order books.
“Previously we had identified two primary MiFID II driven concerns from a market perspective. Firstly, requiring valid Legal Entity Identifiers (LEIs) from clients to be able to trade with them. There was a 6 six month dispensation granted but this is currently proving of limited value in practice given how late in the day it emerged and that banks are not set up to gather LEI application information from - nor apply on behalf of - clients.
“Secondly, the extra-territorial reach of MIFID II presents issues where market structure in non EU Markets operates in a different way to EU markets. For example the Hong Kong equities market where the agency/principal model operates differently with potential knock-on impacts of MiFID II to stamp taxes incurred. There is also widespread use of (non-equivalent) dark pools to source liquidity which presents another challenge in reconciling this with the MiFID II rules. These issues are still emerging in equivalent and non-equivalent jurisdictions and will require on-going pragmatism from regulators to guard against unforeseen consequences for markets.”
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