Embedding the new MiFID II regulatory reporting requirements into your operational processes is easier said than done. There are a number of issues hedge fund COOs will need to consider in order to achieve a smooth and efficient level of reporting.
Data management
The MiFID II Directive covers a very wide scope in terms of financial instruments and the parties to a trade. This can stretch to US brokers and anyone providing data as part of the trade cycle. These new demands require that funds go beyond the limitations of manual data management, because manual errors will increase the chance of a technical breach. Automation is essential.
Find a regulatory expert
A fund’s first port of call should be a regulatory expert who can help with the development of a requirements document. A clear understanding of how the investment business functions and which parties fall into scope is critical. It is an opportunity to develop a clear operational map of the firm, including your balance sheet and which instruments on it also fall into scope.
The value of an ARM
An Approved Reporting Mechanism like Bloomberg or the DTCC will be a key lynchpin in your fund’s automation process, as they act as your interface with the financial regulator. Their role is to ensure that the reports submitted to the regulator are correct. The job has been made more complex, however, because of the need for real time reporting on a post-trade basis. Pre-trade checks can be useful here, as they mean traders won’t need to spend time checking compliance manually.
The reporting challenge for hedge funds
Hedge funds often find they need to integrate data from a wide range of sources. A data mapping exercise can help you to identify which contracts fall into scope. This has been made more challenging by MiFID II because instruments can fall into scope later in their lifecycle. Any reporting exercise needs to be able to respond dynamically to this.
Managing exchange data
Every exchange reports its data differently, and this creates additional challenges when you need to bucket contracts appropriately or managed exchange calendars. This can comprise a major data management exercise if you were to embark upon it from scratch, but Truss Edge can save you considerable time here. Inconsistencies that exist between major market data providers also need to be addressed.
Your unique data map
There is no one-size-fits-all template for hedge fund data management – every fund’s data map needs to take into consideration other parties to the trade, and their respective Legal Entity Identifier numbers. Building the MIFID II reporting process requires considerable investment in time but can deliver considerable automation benefits when it comes to supporting your compliance needs.
Hedge funds should look closely at their transparency reporting processes and consider using some of the Approved Publication Arrangement and ARM tools that are available from major exchanges.
Addressing MiFID II compliance
MIFID II compliance can be addressed more efficiently through automation. Even the smaller hedge fund can achieve considerable operational savings in both time and money by looking at an automation solution. This is not just an exercise for larger funds. The overall level of impact the MIFID II directive is having will vary between firms.
How Truss Edge can help with MIFID II
As specialists in data management and reporting automation, we have a very good understanding of the trading landscape that exists between a hedge fund and its counterparties. We are able to work with you to generate the processes and reports you will need to meet your MIFID II compliance requirements on time while reducing the risk of compliance breaches. Many existing portfolio management systems have still not been properly adapted to the reporting needs of MIFID II, but Truss Edge has been designed with flexibility and modularity in mind and can be adapted to suit your unique operational needs.
For further information on our solutions, please contact us at sales@trussedge.com