Banks Band Together for Mifid Data

LONDON-In light of the Mifid reforms to come, U.K. banks are reportedly working on a new trading data platform to aggregate the data from off-exchange trades, which currently must be reported to the London Stock Exchange (LSE).

"The project has been in discussion since late last year," says Chris Pickles, chairman of the Mifid Joint Working Group (JWG). "It's not a commercial secret," Pickles says. Pickles is also the manager of industry relations at BT Radianz.

The Markets in Financial Instruments Directive (Mifid) requires firms to take all reasonable steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order.

"With Mifid, you are allowed to trade off exchange even in countries that do not let you do so today," Pickles says. "If the best deal is off exchange, you should look off exchange." However, Mifid also calls for market transparency. Consequently, firms conducting trades on other venues are required to report it to an exchange or, under Mifid, to any other entity as long as the data is available to the market. With Mifid, trade reporting is liberalized.

In the current model, the LSE charges reporting fees to the banks. By setting up their own reporting platform, the banks could save on the LSE's reporting fees. "They could reduce cost, and maybe manage to make money out of it," says Pickles, referring to the possibility for banks to resell aggregated data to market data vendors.

Banks such as Merrill Lynch, UBS, Citigroup, Lehman Brothers and Deutsche Bank are reportedly taking part in the project. However, officials at these firms decline to comment about their participation. As for the technology behind such a platform, no vendor has been named to develop the platform.

However, "the technology is there, so it will be easy to build that platform," says Pickles. "Banks could also reuse the technology they already have within their companies."

According to Axel Pierron, analyst at market researcher Celent who spoke to DWT last February, the LSE could lose as much as £20 million ($37.6 million) per year starting in 2008.

However, an LSE spokesperson says that trade reporting represents a small portion of the LSE's business. "Most of our income from trading services is derived from our core product, trades on SETS (Stock Exchange Electronic Trading Service). We believe Mifid presents opportunities, notably with trade reporting for continental European firms," the spokesperson says. However, the banks' project could be seen as a ploy to influence the LSE's reporting fees.

"One possible outcome is that this initiative will create lots of talk on changing the way the market operates," says David Field, managing director at Rule Financial. "The net result could be that the cost for banks to switch to the new platform will outweigh the benefits. So the industry will end up buying its data from the LSE operating exactly as it does today-but at much lower prices," Field adds. "Maybe that's, in fact, the desired outcome. So, the whole initiative could just be a stalking horse to achieve that result."

Olivier Laurent