MiFID II and Uncleared Margins

Nov 04, 2016

October’s Scottish Investment Operations (SIO) forum focused on the upcoming Markets in Financial Instruments Directive (MiFID) II due to take effect from 3 January 2018 and Uncleared Margin regulations.

Hosted at PwC's Glasgow office, representatives from Bank of America Merrill Lynch led a discussion on the key challenges of implementing MiFID II. With an increasing need for organisations to collaborate and drive a common view of reporting best practices, Taskize, a web-based task management utility company, led a further discussion on innovation in client service.

The session was tailored to the priorities of those in attendance, with the emphasis on the sharing of experiences and expertise in the room. A summary of the main themes, opportunities and challenges discussed are below:

Innovation in Client Service: Empowering Financial Services Operations

With the extended deadline for MiFID II, firms have time to consider an approach to manage reporting requirements in a cost-effective and scalable manner.

The relationships that organisations hold with multiple brokers and service providers are critical to helping achieve this, however consideration needs to be given to the communication methods and engagement touch points in doing so.

Without breaking the cycle of resorting to email communications, and starting to look at new technology having verbal or face-to-face dialogue, it will be more difficult to track issues, measure performance and build a consistent workflow.

Uncleared Margin Regulations

Bank of America Merrill Lynch discussed the latest developments in uncleared margin regulations as part of their ongoing dialogue with clients on regulatory reform, with a particular focus on Self-Disclosure of Margin Rule Status and ISDA 2016 VM Protocol.

There is a requirement for extensive documentation to be put in place ahead of January 2018, for example ISDA’s and reviewing CSA’s to accommodate the new rules.

Post MiFID II organisations will be required to post collateral on the day of the call unlike the T+1 process. For those separately managed accounts, the minimum transfer amounts will reduce to USD 0 from the USD 500,000 currently in place, which is likely to result in increased resources required at Broker, Custodian and Investment Manager level to support.

MiFID II: Planning Ahead

A significant change, which will reshape the financial services industry, organisations are now looking to plan ahead with the new regulation potentially impacting a wide range of internal functions.

Some of the key challenges of implementing MiFID II and future compliance considerations discussed were:

  • Trade and transaction reporting – common challenges across the sector included liaison with FIX on the data that brokers provide at a front office level, and on the fills back to Investment Managers via FIX as well as the challenges/benefits of organisations building their own capabilities or using a service provider.
  • Research payments - The AMF and FCA consultation papers were discussed in terms of the scope of research which would likely to be deemed to be substantive. The challenges of collecting payments for Fixed Income research, the issues regarding the setting of research budgets and the operational complexities of managing research payment accounts.
  • Best execution - review of the best execution obligations under MiFID II and the need to review policies and monitoring.
  • Change of market landscape – there seems to be continued concerns regarding the impact the double volume cap will have on dark liquidity. Key developments across trading venues and the expected registration of sell side firms as Systematic Internalizer for broad range of Equities were discussed.


The next SIO Forum, Regulatory Outlook, and the SIO Forum Annual Reception, is taking place on 30 November. Open to SIO members to attend. Register at www.sio.org.uk.

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