MiFID II - Trading and microstructure requirements

  • Our approach to clock synchronisation, algo testing and more.
 

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Clock synchronisation

Under MiFID II there is a requirement for timestamps on messages issued by our trading systems to be formatted in microseconds, and to be accurate to within one hundred microseconds. LSEG is updating its message formats to provide the required level of granularity, where necessary, and building infrastructure to ensure that its business clocks are accurate to the specified level.

Algo testing

MiFID II requires market participants to test each of the algorithms that they deploy on a trading venue. LSEG trading venues will provide the means for the testing of algorithms, via the provision of production-like testing environments and/or testing symbols.

Mechanisms to manage volatility, pre trade controls, order throttle mechanisms, DEA controls and other policies

In preparation for MiFID II, LSEG trading venues will make public their policies and arrangements for mechanisms to manage volatility, pre-trade controls, order and transaction cancellation policies, order throttling arrangements and other organisational requirements.

Under MiFID II, investment firms engaging in a market making strategy will be obliged to enter into an agreement with the trading venue and will be bound by applicable rules as stated in the venue’s rule book.

LSEG trading venues will make changes to their rulebooks and agreements in preparation for MiFID II and will undertake consultation on these in due course.

Market making

Under MiFID II, investment firms engaging in a market making strategy will be obliged to enter into an agreement with the trading venue and will be bound by applicable rules as stated in the venue’s rule book.

LSEG trading venues will make changes to their rulebooks and agreements in preparation for MiFID II and will undertake consultation on these in due course.

Execution quality data

MiFID II requires trading venues to provide reports on execution quality, which are required to be free of charge and downloadable in a machine readable format, as defined in RTS 27. Reports must be published on a quarterly basis and include data for each trading day. Publication must take place no later than three months after the end of each quarter. LSEG’s trading venues plan to publish these reports on their respective websites.

Data required for order record keeping

Under MiFID II there is a requirement to capture significantly more information from market participants, to enable Competent Authorities to fulfil their responsibilities to maintain orderly markets. This increased message content raises potential issues around system efficiency for member firms and trading venues, together with associated questions around data protection and confidentiality of personal data. As a result, and in addition to accommodating the requirements, LSEG is considering ways of providing a technical infrastructure to map short code identifiers in order messages to the full identifiers and to better manage the impact of the increased data in messages on bandwidth and latency. This will allow LSEG to accurately reconcile data and identify orders sent to its trading system, without market participants having to provide this information when inserting orders in the trading system.

LSEG will collect all data and submit it, upon request, to the Competent Authority.

Reference data

MiFID II requires trading venues to provide complete and accurate reference data for all financial instruments to the relevant Competent Authority in an electronic, machine readable format. Competent Authorities will then send this data on to ESMA for publication on their website.

LSEG will continue to provide its current instrument reference data service to customers.