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The potential overlaps between FRTB and MiFID II

Authored by: Adam Borowski and Peter Nash

The coordinated design and drafting of industry regulations is no easy task amongst regulators. Some of the complexities involve regulatory timescales, jurisdictional divergences and related requirements across regulations. However, whether by design or circumstance the Markets in Financial Instruments Directive (MiFID II) and the Fundamental Review of the Trading Book (FRTB) could potentially provide complementary overlaps.

MiFID II is a European regulation with a mandate to increase competition and improve consumer protection in financial markets. One of the means of doing this has been to improve trade and transaction transparency by:

  • Ensuring trading platforms in the European Union are appropriately regulated,
  • Extending the scope of the Systematic Internalisers (SI’s),
  • Increasing transparency requirements for SI’s across bonds and derivatives,
  • Restricting the scope of dark pool trading in equity markets, and
  • Improving pre/post-trade transparency requirements.

MiFID II will provide financial institutions that are subject to the directive with a wealth of new pricing and trade transparency data that can be used to support business, reporting, and transparency initiatives. In fact, MiFID II post-trade reports could be leveraged to support FRTB obligations regarding Non-Modellable Risk Factors (NMRFs).

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