Born Technology Presents on MiFID II at NIBA NYJessica Darmoni
Our own Ihor Andrushko was invited to speak at the National Introducing Brokers Association (NIBA) conference last week in New York. He presented a primer on MiFID II and the far-reaching RTS 6 mandate, which has impacted many of our clients in North America and Europe. We have included some of the highlights from his speech below.
One of the most important notes in his presentation was that MiFID II is a directive, not a regulatory requirement. This means that each EU member state’s regulatory authority can adapt this directive depending on the structure of their financial services offering, as opposed to a regulatory requirement that needs to be implemented as it is written.
The MiFID II directive has a few areas that it focuses on including Research Unbundling, Transaction Reporting Obligations, Legal Entity Identifiers (LEI), Clock Synchronization and finally, the Monitoring and Alerting of Direct Exchange Access (DEA) & Algorithmic Trading.
We have found from talks with customers and potential clients that the DEA & Algorithmic Trading aspect of MiFID II, specifically RTS 6, is far-reaching. It includes VWAP (volume orders), TWAP (timed orders) and Excel sheets which adjust parameters. It also impacts vendor algorithms, synthetic stops, auto-spreaders, gray boxes, black box trading and any other machine adjusted parameters. Auto-hedging and auto-quoting are also included under the RTS 6 mandate.
The definition of DEA includes anything without a smart order router as well as many front-end systems that utilize auto trading.
MiFID II RTS 6 requires alerting within 5 seconds if there is a breach of thresholds for Algos and DEA, real-time monitoring of excessive order types and real-time reconciliation of ISV’s and trading venues as well as Algo repetition and global position limit monitoring.
Our conclusion is that we don’t live in a one-side monitoring world anymore and even if you don’t fall under the MiFID II regime, you are probably doing business with firms that do. Find out what you need to consider by calling us.