Industry participants across the buy- and sell-side gathered in London recently at an ICE Data Services / The Trade event to discuss how firms can overcome the key data challenges presented by MiFID II, and what the future is for fixed income markets as investment firms begin to take firmer grasp on data.

Panel Highlights

'No LEI, no trade'

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As arguably one of the more complex components of MiFID II, the transaction reporting requirements go many steps further than the original MiFID rules, bringing in a wide scope of different reporting fields, instruments, and investment firms responsible for reporting.

Whereas MiFID I covered equities and some equity exchange derivatives and only 24 data fields to report on, MiFID II engulfs nearly the entire universe of financial instruments and requires a far more comprehensive 65 data fields.

Expansion of Reporting Rules

MiFID II has expanded the scope of the transaction reporting rules to include financial instruments that also fall under the traded on a trading venue (TOTV) regime. It is here that this new concept of Legal Entity Identifiers (LEIs) for the fixed income world is likely to cause major challenges to the industry, according to panellists. The regulation states buy-side firms subject to the transaction reporting rules should not execute a trade on behalf of their clients who do not have an LEI in place.

Just over half a million LEIs have been issued globally, however a large portion of fixed income instruments are absent from this.

David Bullen, founder, Bullen Management highlighted that around 90% of sovereign issue bonds and between 50-75% of all corporate bonds do not have an LEI.

"These are not insignificant numbers, and it is about the creation of them [LEIs]. It is a massive implementation problem, and some people have to go out and create them, and clearly apply them to the fixed income world. There has never been a requirement to have the LEI at the time of the trade, but after January 2018, you need to know it exists before executing a trade. Otherwise you will be unable to report that transaction and you may well be penalised".

The Global Impact

The LEI mandate is a global one, applying to all market participants carrying out business with European counterparties. However, the LEI regime is absent in Asia, where only 3% of global LEIs have been issued.

This could mean a large portion of Asian investors will not be able to trade in Europe, Chris Johnson, senior product manager, market data, HSBC Securities Services explained.

"A key challenge for those firms that have not used LEIs beyond derivatives, is that there are many entities that must have an LEI for MiFID II such as the executing entity, the buyer and seller decision makers, order receiver, entity which submitted the order, the counterparty, the fund manager etc."

The panel then discussed how ready the industry is, as Adrian Gill, regulatory compliance specialist, NEX Abide Financial, highlighted his concerns that firms are still ‘plugging the gaps’ over their reporting analysis.

"There are still some firms that are doing gap analysis which is a bit worrying as we are fast approaching the go live date. If you are not with a solution provider already, this is not something you can just overlook, it involves a lot of key decision making and careful selection of providers".

Readiness of the Reporting Supply Chain

Adrian Gill also questioned the readiness of the whole reporting supply chain, which includes the solution providers and the regulators.

"It is on both sides over how ready are you, so how ready are the solutions/ the regulators etc. We are seeing some of the reference data that is going to be needed is not going to be available right up close to implementation." There are still lots of firms that are only just coming up to speed with all the complexities and nuances involved in the reporting process."

The Importance of Data

However, the impending rules have forced buy-side firms to look more closely at their data and the information they have to provide to the regulator, said Hubert Deroubaix, business development director, ICE Data Services.

"What is clear is that there is a lot of scrutiny coming back on the transaction eligibility indicator that we provide because everybody is trying to ascertain what in their portfolio's is transaction reportable," "There are fairly complex criteria surrounding that as it is not just what is directly listed in Europe, there are ramifications through the underlines."

In Summary

The 'no LEI no trade' concept is an unavoidable one that investment firms will just have to accept and prepare for sooner rather than later. The panel agreed that there is no excuse for market participants not to prepare, however the industry can collectively work together to bring about solutions and ease implementation for everyone.

Applying TCA To Fixed Income

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The second panel debated the importance of transaction cost analysis (TCA) and applying best execution to non-equity markets. 

Regulators have pushed for best execution to apply to multiple asset classes, including fixed income, credit, FX and derivatives, in order to accurately measure market conditions and ensure investment managers are taking “all sufficient steps” to get the best price for the instrument they are trading. The rule essentially codifies the fiduciary obligation of any buy-side firm.

The panel discussed how this concept can apply, but determined that achieving true best execution is more difficult for fixed income than equity markets.

“Unlike exchange-traded markets, fixed income trades mostly OTC, and a lot of best execution in fixed income depends on the skill of the executing trader and their respective access to market information and liquidity,” said Mark Watters, director at AxeTrading.

The Data Challenge and How TCA Fits In

The panel outlined how the main hurdles for achieving best execution in fixed income lie in the lack of data and reference points to demonstrate it.

However, these hurdles will likely shift as the use of TCA adds to the data and reference points, providing participants with more proof of best execution. Because of this, service providers are seeing increased demand for a wider range of data analysis and data capture tools from buy-side clients. 

“The emphasis is on achieving best execution on a consistent basis and it is not only about the price but other factors including size, cost, speed and likelihood of execution and settlement. We are seeing demand for reference pricing, trading analytics and tools to assess large volumes of information for effective oversight. Our tools allow analysis for example at the venue / counterparty level to view overall quality of execution achieved," said Paul Williams, senior director, business development at ICE Data Services.

Despite the lack of benchmarks to compare trading performance in fixed income, TCA could be a useful tool or guide to inform trading decisions and identify outliers, the panel agreed. 

The ‘Burden of Proof’

Cathy Gibson, head of fixed income trading for the UK at Deutsche Asset Management, commented that obtaining best execution is less of a problem as it has already been achieved, despite upcoming regulatory requirements.

Instead, the challenge for Gibson’s trading desk is the ‘burden of proof’ buy-side firms must be able to provide in a potentially non-transparent environment.

“Best execution policies must be in place and fit for purpose, they must be monitored, tested and verified and they will need to evolve with the increasingly changing market structure,” she said.

Flexible Approach to Trade Cost Analysis

The use of TCA, whether built in-house or provided through a third-party vendor, could act as a useful tool for proving best execution, but the panel stressed that a single TCA process will be difficult to apply across all fixed income markets.

“For more liquid instruments TCA could be used to record details of price data during the execution process. Although I am super cautious about advocating use of TCA for fixed income products, it could be used to perform a high-level filter to help identify outliers," said Julie Beecher, an independent consultant for the buy-side.

Research has suggested TCA usage on trading desks has grown substantially over the past several years, reaching a saturation point in equity markets.

It revealed TCA is currently used by 81% of equity trading desk, up slightly from 2015 when 79% of desks reported using TCA. In comparison, TCA is currently used by just 32% of fixed income trading desks and 58% of FX trading desks.

In Summary

Fazila Gauhar, a senior associate at the Financial Conduct Authority (FCA), informed delegates the UK watchdog is agnostic as to whether firms use TCA or not and its use is not a requirement under MiFID II.

Gibson explained despite this, TCA is a “useful aid to capture the market environment throughout the life cycle of the trade and can help evidence best execution”.

The panel urged delegates to consider that best execution requires firms to take into account not just the price of a trade, but also speed, likelihood of execution and settlement, size, or any other consideration relevant to the execution of the order.

"The danger of shifting toward using TCA as a benchmark for best execution is it will result in behavioural change which will not deliver the best possible outcome for clients,” Beecher added.

Data quality for buy-side firms

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MiFID II will impose a range of new pre- and post-trade reporting requirements on European traders that will make Europe one of the most transparent markets in the world.

This new era of transparency, coupled with other global regulatory and economic developments, are causing major upheaval in the fixed income sector in particular.

The final session of the day brought together a panel of experts to answer audience submitted questions on whether the buy-side will soon be equipped with enough data to have an edge over the banks and become key players in fixed income markets.


One of the key issues audience members were concerned about was whether they would need to hire quant and data specialists in order to fully exploit the new opportunities in the bond market.

Virginie O’Shea, research director at consultancy Aite Group, said some firms had realised the need to get a grip on data:

"Our stats show 24% of the top 50 global asset managers now have a chief data officer in place, but less encouragingly, they tend to last just under two years on average [in the role], so the tenure of a chief data officer is not very long unfortunately."

It was unclear whether this rapid turnover in top data executives was due to a lack of operational support of investment, but should be concerning for the asset management industry in particular. Chief data officers in sell-side firms tend to last longer, O’Shea added, where effective data management has become a more mature function.

"It can be very hard for firms to find the right people, to handle the day-to-day crunching of big data. Banks have been leading in this area, but asset managers are much further behind," said O’Shea.


There is also a considerable divide between how larger asset managers are reacting to the need for better data management to get ahead in the marker compared to smaller firms, according to Claudio Salinardi, managing director, Pricing and Reference Data, EMEA, ICE Data Services.

"Bigger firms are already used to archiving a lot of the information they gather to use it effectively. Buy-siders have access to public information, to research and to floor, positioning and dealer axes, they are getting increasingly sophisticated in terms of analysing this,” Salinardi explained. “Those firms already have something in place, but as highlighted today, other firms would have to look at third parties who can bring them the kind of tools they will need to take a more analytical approach."

Jonathan Gray, head of fixed income EMEA at Liquidnet, said:

"Ultimately this comes down to costs, and budgets on the buy-side are squeezed so paying £100,000 extra for data analysis that you might already be handling in-house is a big ask."


The other key issue the panel raised was the issue of data quality, which can be a major concern for the buy-side. 

"Failure rates in fixed income are incredibly high, and that is mostly due to data quality issues," added O’Shea

Being able to adequately assess the quality of data is one area which is likely to trouble the buy-side in the future, and may require evidencing as part of best execution requirements, highlighting the need to get on top of data issues.

"We see cases such as two different bond issues, with different terms for example, will have the same ISIN, but trading behaviour between the two issues could be very different," Ashlin Kohler, Director of EMEA Fixed Income Market Structure at Citi, gave as an example.

Dealing with this sort of oddity that crops up in the fixed income market will be one of the biggest challenges facing buy-siders that hope to take a major role in the new fixed income landscape, and having the right specialist tools and personnel could make the difference between their success and failure.