Away from the hubbub about HFT (High Frequency Trading) a quiet storm is blowing in to the EU that will radically change securities trading in bonds, OTC derivatives and other asset classes. The new MiFID II1 rules, top off the alphabet soup of an extensive new rule book that, after the European Parliament's 'Super Tuesday' on 15 April 2014, is finally set to become law.
Lawmakers and addressees of the legislation are in the middle of busy summer: ESMA (the European Securities and Markets Authority) issued a 311 page Consultation Paper and a 533 page Discussion paper on 22 May 20142, posing 860 questions to be clarified in a public consultation due to close on 1 August 2014 whose centrepiece was two days of open hearings in Paris on 7 and 8 July 2014.
The new rules are at their most radical, both in market and legal terms, in the area of data. Data is funny, inert stuff in legal terms. An old UK theft case held you can't steal it and, after a UK judgment earlier this year, you can't have a lien (a right to retain possession) over a database either. Although there are strictly speaking no legal right in data, nevertheless a broad and increasingly valuable range of legal rights and duties has developed in recent years in relation to data, based on contract law, regulatory law and copyright, trademarks and other intellectual property (IP) rights.
Market data is a $25bn global industry, based on an ecosystem of exchanges and other data sources, index providers, data revendors, and buy- and sell- side data users. The ecosystem is held together by contract law, with market practice based on contract structures that license, restrict and allocate risk around data use. From the legal perspective, these contracts constitute a cohesive normative framework in a market that has seen surprisingly little litigation (outside the area of trademarks, where unlicensed use in the USA and Europe of index names like S&P 500, DJIA and DAX in futures and options has led to trouble).
MiFID II makes its contribution to the dawning era of Big Data - vast exploitable data sets of computerised information - by requiring pre- and post- contract price data to be disclosed and reported to the market for all the securities trades it regulates. MiFID II effectively takes MiFID I's regulatory template for public price transparency that was introduced for equities trading in 2007 and extends it to the secondary market for bonds, OTC derivatives and most structured finance...