AIMA Dublin The Impact of MiFID on the content, costs and uses of market data

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AIMA DublinThe Impact of MiFID on the content,
costs and uses of market data
24 October 2007
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The essential guide to screwing up your
business Jeff Randall

• Keep reminding your customers how lucky they are.
• Stick to a proven formula. Assume infallibility.
• Dont meet your customers
• Believe your own story. Isolate yourself.
• Never take any time out to think
• Indulge in continuous use of blackberries and
  mobile phones
• Fall in love with administration and bureaucracy
• Be afraid of the future. Its uncomfortable and
  will show the world how little you know

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Key issues exchange traded markets

• The proportion of volume traded electronically
  will continue to grow rapidly
• Regulatory change will be a key driver of client
  investment and opportunity in 08 and 09
• Efficiency and risk management will drive even
  greater adoption of STP,
• Algorithmic trading has created new trading
  opportunities, resulting in volume growth that
  will outstrip headcount growth
• Banks and brokers will seek to monetize more
  aggressively their OTC prices and data
• Growth in the volume of market data will mean
  that it will no longer be possible to broadcast
  everything

IDN growth 3 month trended traffic rates since
1987.
3 month trend (updates per second)
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September 2006 Peak at New York Open
Reuters receiving 61,000 messages per second
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September 2007 Peak at New York open
Reuters receiving 132,400 messages per second
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Exchanges were institutions
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Old Markets Learn New Tricks - Profits
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MiFID
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Markets in Financial Instruments Directive
Increase market efficiency through increased
transparency and competition
MiFID Objectives
MiFID Objectives
A common regulatory framework across Europe
Provide protection for the retail investor
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Markets in Financial Instruments Directive
01 Oct2004
01 Jan2005
01 Apr2004
01 Jul2004
01 Oct2005
01 Jan2006
01 Apr2005
01 Jul2005
01 Oct2006
01 Jan2007
01 Apr2006
01 Jul2006
01 Oct2007
01 Nov2007
01 Apr2007
01 Jul2007
MiFID Level 1 passed by European Parliament
Extended Consultation on implementation measures
MiFID Level 2 Implementation measuresfinalised
and published by the Commission
Deadline for Transpositionof MiFID into local law
9 months allowed forimplementation
Deadline for MiFID implementation
Most MiFID obligations apply to all financial
instruments
7 days to go.
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Status of Transposition

• As at 1st October out of 27 states
• 15 states had notified the European Commission
  that they have transposed Level 1,
• 13 states had notified the European Commission
  that they have transposed Level 2.

The following states had not notified
transposition of Level 1 or 2

• Greece having notified of transposition of Level
  1 but not Level 2.
• Cyprus having notified of only partial
  transposition of Level 1.
• Latvia having notified of only partial
  transposition of Level 1 2.

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Fragmentation and Consolidation

• MiFID Transparency obligations will result in
  fragmentation of equities trade data
• Price fragmentation may occur but not initially
• Professionals will need consolidated pricing
  trade data for each stock
• Will Dark pools of liquidity increase the
  importance of post trade data?
• Access to complete market data will be more
  expensive
• Reuters will be a publication venue for trades
  and prices, but not an MTF

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New Data feeds

• BOAT will charge 120 per person per month with
  free access to 2hour delayed data
• Chi-X, Plus Markets Xontro data will be
  accessible free of charge
• Borsa Italia, Vienna Stock Exchange, Bratislava
  SE have yet to announce charges

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Reuters as a publication venue

• .r RIC for all publication to a Reuters venue
• Reuters Trade Publication
• Leverages the technology behind Reuters Trade
  Notification Service
• Compliance with FSAs Trade Data Monitor
  functions and MiFID Level 2 transparency
  obligations
• Publication via a FIX enabled API, or via a GUI
• Minimal cost for publication

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Consolidation
From 1st November the .x RIC will provide on
existing Reuters desktops

• Initially in 1,200 of the most liquid European
  stocks
• Will expand to cover all stocks defined by CESR
  as eligible
• Best bid/offer from multiple venues all trades
  as they happen
• Separate display of all recent trades
• Access cost dependant on the cost of contributing
  feeds.

Day one coverage will cover 13 venues including
LSE, Euronext, Deutsche Bourse, OMX, Virt-x,
Chi-X, Boat Reuters.
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Best Execution
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Best Execution

• Applies across all asset classes, although
  application to dealer markets not as clear as for
  equities.
• Take into account factors other than price
  (latency, likelihood of execution, settlement
  costs..)
• Firms to establish an execution policy,
• Evidence compliance with that policy,
• Validate that policy at least annually.
• Beyond Equities
• whether the client legitimately relies on the
  firm to protect his or her interests in relation
  to the pricing and other elements of the
  transaction
• Commission
  Working Document ESC-07-2007
• Status of portfolio managers?

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Best Execution RDTH

• In all asset classes, Reuters also offers Reuters
  DataScope Tick History (RDTH) for compliance and
  regulatory requirements
• RDTH will allow firms to retrieve all underlying
  tick by tick data to
• Determine and establish best execution venues.
• Maintain compliance on a daily post trade basis
• Prove compliance up to 5 years after the trade
  should regulatory agency probes come into effect
• RDTH will allow firms to validate the quality of
  execution provided by the venues within their
  policy by
• Comparing the tradable market of the venue chosen
  versus what could have been achieved across all
  other venues.
• RDTH will also store the .x RIC composite for
  future comparison

The focus of RDTH is to provide firms access to
all underlying tick by tick data across all asset
classes on a global basis to assist compliance
officers with daily comparative market level
intelligence by venue to achieve regulatory
compliance.
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Best Execution RTCA

• In Equities Reuters will offer Reuters
  Transaction Cost Analysis (RTCA)
• RTCA will allow firms to evidence compliance with
  their execution policy by
• reference to benchmarks calculated using the
  price trade data from the execution venues
  identified in that execution policy.
• this will be facilitated by choosing the relevant
  RIC identifiers in RTCA for the price trade
  data from those venues.
• RTCA will allow firms validate the quality of
  execution provided by the venues within their
  policy by
• comparison of the execution quality of the venues
  chosen versus what could have been achieved
  across all venues.
• this will be facilitated by comparison against
  benchmarks calculated using the composite ".x"
  RIC.

Although the initial focus for RTCA is on
Equities coverage of other asset classes would be
possible if comparative trade and pricing data
were to be made available.
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Reuters Transaction Cost Analysis

• Historical hosted Transaction Cost Analysis
  Service
• Broad range of Benchmarks
• Historical Trade and Order Analytics
• Scenario Analytics

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Reuters Transaction Cost Analysis Summary and
Drill Down Reports

• Summary Cost analysis
• Segmentation Analysis provides
• Drill Down to carry out analysis
• Trader Performance
• Volume Consumption
• Fill Analysis
• Individual trades and orders

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