With Christian Krohn, Managing Director, Head of Equities, AFME, and Matthew Coupe, Director Market Structure, Barclays and FIX Trading Community EMEA Regulatory Subcommittee Co-chair.
Christian: It’s certainly been the case for MiFID II that there has been a lengthy process of negotiation between the European parliamentarians and the member states as co-legislators on one side, the commission on another, and then ESMA and the regulatory community all trying to have a key stake in the shape of that regulation. It’s almost inevitable that the process has become deeply politicised because it’s such an important piece of regulation. It really does govern how Europe’s capital markets are going to function in years to come.
But that’s not to say there isn’t a need for efforts to standardise what we can, where provisions have become settled as a matter of politics or where the politicians have agreed and policy makers in general have agreed about what they want the regime to achieve. Then it’s up to practitioners and standardisation bodies such as the FIX Trading Community to help policy makers operationalise that policy and to make sure that the regime actually works.
Matt: Obviously there’s a lot of work going on engaging those various stakeholders while the policy and political aspects are still very active. But the standards need to be built into that process from the ground up, because if we don’t have standardisation, we’re not going to achieve one of the core goals of MiFID II, which is to enable a much greater level of understanding as to the transactions that are occurring in the marketplace.
The FIX Trading Community is a standards organisation, and we’re promoting free and open standards across the financial service industry. We know that there are a number of trade associations engaged in this space, but FIX is quite unique in the sense that we operate downstream to many other trade associations and we get much more heavily involved in the nitty-gritty implementation of the regulation because it comes from a much more technical perspective. A classic examples of that is the fact that FIX is the owner of the FIX messaging standard and the MMT standard.
However, it goes a step beyond this as well because if we don’t have a standard set of engagement rules and standards in how we interact with the market and each other, it falls away. Collaboration with AFME adds a business policy perspective and understanding from a higher level in terms of what the impact will be, and establishing an industry position.
The depth of collaboration
Christian: The primary role of trade associations is to develop policy positions, initially, often at a high level, but as regulatory regimes are developed, at an increasing level of detail, including quite nitty-gritty policy positions on the interpretation of the evolving legislation. Whereas in contrast, the role of standardisation bodies like FIX is to step in once the position has been settled among policy-makers and work closely with market participants to decide how it’s going to be operationalised.
The collaboration is very close across the various industry bodies. There’s even a joint trade association group here in London where FIX sits as well alongside all the major sell- and buy-side trade associations.
Matt: It is definitely wrong to think that the trade associations don’t intercommunicate or correlate. While FIX generally sits further downstream to the other associations, all the associations have a very close interoperation in terms of communication. This is not necessarily just between sell-side organisations, but also buy-side organisations. We need to be able to address this regulation and if we don’t address it as an industry, it’s going to create issues. Everyone is actively working together to try and deliver a very large chunk of requirements that need to be operated on across the whole spectrum. This also applies to the venues and the vendors as well, who play important roles. All of the associations have a role in that engagement, in pulling all those different viewpoints together.
Christian: One of the reasons why this collaboration between organisations that each have a different focus is becoming increasingly important is the sheer size and scale of the task.
Matt: The scope of MiFID II is across a number of massive asset classes, and this needs to be divided up but also correlated and coordinated because some of the themes fit across asset classes. This cooperation and collaboration is only going to further deepen as we go through the process.
The future
Christian: The immediate focus is to try and identify members’ key policy areas where surgery is still required on the RTS. Those policy changes must then be advocated to the commission, the parliament, the council as well to other stakeholders.
This coming period is about engaging with policy makers to make sure that the Level 2 measures, be they in the RTS or delegated acts are fit for purpose.
Matt: From a FIX Trading Community perspective, right now, we’ve got further detail but a definite lack of cemented detail. We’re leveraging that further detail to try and put the plans in action to try and respond to this regulation within the timeframes that have been laid out. With more details, the more we can do to try and harmonise industry standards and enable an effective implementation for the industry.
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The Role Of Associations In Regulation
