Traders of any European asset class would be forced to hand over personal identification such as passport numbers to every venue they trade on due to a seldom-discussed aspect of the looming MiFID II laws which is a potentially a recipe for explosive battle.
tens of thousands of investors and traders would be dragged into the massive data-collection exercise who some trading venues say may simply refuse.
breaching the European Union’s Markets in Financial Instruments Directive rules or cutting off their customers when they kick in on Jan. 3 are the two issue that a client mutiny would leave platform operators would be left stuck between.
“The whole issue around personal data has been underestimated,” said Enrico Bruni, managing director, head of Europe and Asia at Tradeweb LLC. “There are three problems: There’s an administrative problem for having to manage this data, there’s a philosophical problem about whether it’s right to collect this data. And, potentially, a legal problem.”
The first major market to switch on its MiFID-ready platform will be Cboe Global Markets Inc.’s European exchange, formerly known as Bats Europe, on Oct. 27 and then the hunt for data will start. Hoping to gather the data in less than two months, London Stock Exchange Group Plc and others will follow in November.
For citizens of countries with strict privacy laws, that will prove impossible. It’s illegal to supply passport numbers to a commercial organization in Switzerland for example. Because they wanted a means of more quickly identifying individuals in cases of suspected market abuse, the EU’s regulators insisted on putting a personal-data requirement in MiFID II.
Another worry is costs. According to IHS Markit and Expand, a consultancy owned by Boston Consulting Group, trade reporting and transparency requirements will be the heads under which about half of the more than $2 billion banks and asset managers will spend on MiFID.
How many of their customers will refuse to follow the rules is not known to trading venues. The hardest hit would be currency-derivatives markets and fixed-income. All of the thousand members belonging to the average bond-trading venue will need to supply data. In comparison, it is a bit easier for the stock exchanges. There are just about 150 members in Cboe’s European venue, for example.
Katten Muchin Rosenman LLP’s Nathaniel Lalone says that convincing Asian firms to hand over client data is also proving a headache,
“In most of the conversations that we have had recently, someone has brought up the hassle of supplying personal-identification data,” said Lalone, a partner at the law firm. “And some countries have rules that make it harder to pass on this information. South Korea is very, very strict.”
What should be done with the rule breakers is also a question that is being asked. U.K.-based venues have been double checking with the Financial Conduct Authority, which has yet to respond even though MiFID technically requires traders be barred until they cough up the information.
“Fines are one lever,” said David Howson, chief operating officer at Cboe Europe. “We might disallow connections. The final measure is to stop them submitting orders to the order book. It’s one of the main pain points and one of the main risk areas for us with MiFID II.”
(Adapted from Bloomberg)