Why RegTech and why now?
The aftermath of the global financial crisis has stressed the focus on regulatory compliance in financial services industry, which has pushed the regulatory bodies to tighten the practices on financial institutions.
The number of regulations a financial firm has to comply has grown since the last decade. Also, the financial institutions are put up with the massive competitions with the FinTech newbies, and to overpower the competition and to imply as the top player, they are entailing with RegTech, as this technology is here to solve their complications much faster & easier with automation.
Resolving the financial firm’s regulatory and compliance issues:
Only technology & innovation can make a financial firm’s life easier. That’s how Sensiple crafted a Global RegTech Analytical Platform, Setrega for banking and financial institutions, where they can employ this comprehensive suite for complying with one or more Regulatory Authorities.
Being a financial institution has its perks and cons. The institution has to adhere the compliance and the regulations, be it any scenario. Instead of a manual regulatory process adhering, the institution can integrate Setrega, a Global RegTech Analytical end-to-end Platform.
How Setrega can help you to evolve your regulatory challenges:
Setrega eases the frequent change in regulatory compliance by just modifying the configuration rather than changing the entire application logic
Setrega supports “Real-Time” as well “on-Demand” regulatory process at multiple frequencies via multiple channels in various formats for multiple repositories.
Setrega provides end-to-end regulatory process automation from financial source data extraction to regulatory process workflows.
Setrega helps you to handle the regulatory & compliance process without manual intervention, which saves time and reduces the operation cost
Setrega helps to track the entire lifecycle of the regulatory process from creation until submission to regulatory authorities.
Adherence to regulatory compliance requirements through auto schedulers
Alerts on rejection for immediate corrective action
Setrega can reconcile data from any repositories
Surveillance & monitors to alert for any regulatory breaches
Regulatory Risk Configuration and management
Auto scheduler monitors and alerts until the regulatory processes are completed
Exceed your regulatory & compliance standards and work along to ensure compliance, audit, and risk flows adhere to the cutting-edge technology implementation. To explore more about Setrega, Schedule a demo
Regulatory legislations, when imposed on financial firms, are meant to keep the business intact with certain guidelines, regulations, laws, and specifications. Also banks and financial institutions have adopted advanced regulatory technologies for addressing non-compliance and to increase the effectiveness of regulatory compliance.
But since the arrival of AI on the scene, with its innovative technological advancements, accurate processes, and analysis, the scopes of RegTech is entirely reinvented and taken to new heights.
Notable purposes of AI in RegTech
1. Influencing new regulations implementation
It certainly is a burden for organizations to keep track of ever-changing regulatory obligations and quick implementation. But AI would update new regulations in a single configuration from which firms can refer and assess the regulatory restrictions.
An AI-powered regulatory technology could compare newly introduced regulations with existing directives and mandates to identify overlaps and see if any changes have to be made. It also ensures these regulations are implemented in the relevant business units.
2. Replacing tiresome manual tasks with faster AI
Regulations are copious in scope and massive volumes of data are produced at every instance ranging from financial transactions, customer records, emails, to activity logs, and phone calls. These data need to be duly processed before submitting to the regulator in the mandated format. These processes will be more effective and time-saving as AI eliminates unproductive manual tasks associated with regulatory compliances.
3. Prevent fraudulent activities in advance
Adopting AI will be a decisive factor in combating financial fraud. AI-powered RegTech technology, with its array of statistical and quantitative tools, monitors the trade history and creates accurate risk models by identifying nonlinear patterns in large data sets. If sorting through the data reveals anomalous activities such as lending frauds or money laundering, it automatically alerts the stakeholders.
Benefits of implementing AI for FCRM
No one can escape the keen eyes of Artificial Intelligence as it ensures compliances to multi-layered regulations that address trade surveillance and financial crimes. AI simplifies much reliably the FCRM (Financial Crime Risk Management): in the context of incident investigation and AML transactional analysis, AI is crucial for firms to enforce FCRM practices.
4. Cost-effective compliance
While compliance may look very expensive, AI is gaining a higher level of traction among financial institutions for its ability to upgrade the processes and shrink the costs at the same time.
It is a persistent problem for firms to understand the regulatory implications and business dynamics, to which they allocate increasing amounts of funds. With AI, cost savings come in the guise of streamlining difficult compliance processes and reducing both staff workload and business risk. With greater immediacy and near real-time interpretation and execution of compliances, organizations can reduce considerable costs.
5. Error-free reporting
If nothing else, the future regulatory laws are expected to be more extensive and include more variety of compliances to be followed. More volumes of data will add further pressure on banks and firms to process in an incredible amount of speed. But the speed of processing runs the risk of compromising the integrity of the compliance data due to errors arising from the manual review.
But AI-powered RegTech will search and compile comprehensive reports and portfolios into coherent and accurate insights. With the right data at hand, firms can consistently and precisely report the regulators.
In the end, RegTech solutions, armed with AI, enables banks and FIs to comply with the evolving regulations, improve ROI, and employ their resources to concentrate more on customer-centered activities instead of focusing on the tiresome regulatory processes.
The millennium is moving towards trading in micro-seconds, but nothing has changed majorly in post-trade during the last decade. The major investments contributed to front-office solutions, whereas the middle and back-office should also be given equal preferences.
The industry pressure is mounting to reduce the settlement risk, avoid manual errors in back-office processes, and improve efficiency. This can be achieved through the FIX protocol, which standardizes the allocation, affirmation, and confirmation processes by providing a compelling advantage for the industry.
Apart from trading communication, the larger perspective anticipated for FIX is extending its scalability to back-office operations. The efforts for the early adoption of FIX in back-office processes are pushing away the legacy systems and pioneering the migration towards FIX.
Post-trade processing via FIX contributes to reduced settlement cycles and can enable T+0, T+1, T+2, which can mitigate the operational & settlement risk and can increase operational efficiency in post-trade workflows with reduced cost.
The Need for FIX in post-trade processes!
Increasing Regulations: The trading regulations are increasing day-by-day and are expected to be reported within the same transactional day to ensure investor protection, but the back-office requires a lot of manual intervention, which makes it near to impossible for reporting. FIX can enable standardized communication in ensuring the regulation have adhered.
Shortened Settlement cycle: Prior to this millennia, the trade settlement cycle takes around T+5 & T+3, but the industry today is moving towards a much shorter trade settlement cycle like T+2, T+1 and even T+0, which can be made possible only through FIX’s standardized settlement instructions and handling. Usually, the settlement instructions need buy-side attention while processing but FIX can reduce the manual intervention and can process efficient workflows.
Enabling Post-Trade transparency through FIX
In a time where regulation influences the decision making in this industry, it is essential to bring forth the substantial processing issues around the confirmation and affirmation process in the extended trade volumes and decreased average trade sizes. This prompted buy-side firms to look for alternate solutions to communicate allocations, confirmations, and affirmation of their trades.
Fig., Post Trade FIX messaging workflow
The real-time integration with OMS systems supporting multi asset-class platforms can unify the post-trade workflows. The unified back-office automation using FIX protocol can reduce a lot of manual interventions during the allocation, confirmation, and affirmation processes, which drastically reduces trade processing cost, shorten settlement cycle, and increase post-trade operational efficiency.
A comparatively large number of asset managers are looking to automate post-trade processes using FIX protocol. Also, they explore the possibility of using FIX for confirmation and allocation.
Meanwhile, the clearing & settlement processes comprise high volumes of local and cross-border trades while supporting diverse and complex financial instruments. This makes the custodians to strive for a robust & automated post-trade processing platform, which can be integrated with cash processing capabilities for real-time settlement, and this supports only a few asset classes in today’s system. This integration also has the ability to manage risk and compliance needs.
FIX is addressing the post-trade hassles in the evolving space, the one in which trading technology has progressed much faster than post-trade. FIX protocol can re-engineer the legacy post-trade workflows by standardizing the end-to-end process with increased transparency. This cross-industry effort has the potential for extensive risk mitigation in this post-trade space along with cost saving, improved processing time, and accuracy. Talk to our experts to learn more abou this FIX protocol implementation.
The bygone decades have seen a rise in the trade regulatory requirements. While the growing regulations are intended for investor protection, it is ultimately resulting in higher compliance cost and manual workloads.
Global spending on compliance and regulatory is closely around $270 billion and 10 – 15% of workforce in the financial firms are dedicated to Regulatory Compliances. Over the past decade, regulators have asked financial institutions to undertake several modernizations on their businesses and many of the organizations have struggled with regulatory-driven transformations.
While the evolving regulations are unpredictable, the industry stress on financial firms are growing and its taking a toll on its returns.
5 key challenges that drives regulatory costs are,
1. Digital Drama
The traditional financial firms are realizing the need for digital transformation. The digital enablers are continuing to create a momentum in the financial services industry but the firms are still struggling to adapt to the digitalization.
Unlike traditional methods, the customer-friendly UI and the frictionless digital workflow contributes to the high revenue through increased adoption rate. But the cost associated with the transformation to digital is plummeting to sky high, which pushes many of the financial firms to still follow the traditional error-prone methods.
2. New Players in the market
Competitions are complex if they arise from unexpected industries, and this might create chaos and disruptions. New FinTech players are the emerging competitions to the traditional institutions and these newbies are expanding the market scope but resulting in increased compliance scrutiny. This evolving risk scenarios leads all market participants to comply with more regulations and ends up with higher compliance cost.
3. Domain Expert Resources
The system can do anything but to instruct the system and to foresee the regulations, domain expertise is required. Few organizations depend on the external researchers for industry involvements. Many big financial firms are paying hefty amount for researching and domain expertise consulting. For instance, Europe’s MiFID II has regulation on external research spending and it has to be reported as research unbundling reports. So, domain expertise is the new black.
4. Stringent Regulations
Being stringent is not the worst thing in the world except it requires lot of manual workloads and error-prone processes to be tracked and reported. This will influence investor protection and avoids business risks but coping with stringent regulations is costing heavily in terms of spending among FinTech firms.
5. Adapting to Evolving Regulations
Regulations are not a one-day deal; it is an evolving framework. Still MiFID II implementations are not fully done but talks are going on about MiFID III. When the regulations are evolving, the framework needs to be scalable and the technology has to adapt. Driving efficiency for the new regulations can be tougher for the financial firms but with the right FinTech provider, it can be solved.
Source: Thompson Reuters
How does RegTech influences in reducing your compliance cost:
Identifying the best player in the market:
The RegTech solution provider should be an efficient all-round player in the market and should have the capability to optimize your operational model with the managed services. Also, the transformation and the integration should be done seamlessly, which will minimize the manual efforts of the regulatory team and the provider can enable seamless automated process to achieve high performance.
Depending on emerging technology solutions to beat the heat:
Financial services and technology companies, use emerging technologies to address key pressure points, reduces cost, and mitigate risks. A successful RegTech strategy extends to engage with the firms and the regulators to test and scale solutions faster with operational efficiency, which can reduce implementation cost of enabling the evolving regulatory requirement framework.
Advisory, consulting and staffing with RegTech domain expertise
The consulting services should be focused on establishing and sustaining values for you. RegTech solution provider should develop coherent plans to enhance processes, address issues and assist in implementing measurable and sustainable performance enhancements. The domain expert consulting can reduce your operational cost and improve your business values.
Pre-defined initial regulation check
Financial institutions should deploy initial-level of regulatory checks to validate the data required for regulatory reporting. RegTech solution should authenticate the data while retrieving it, instead of validating at the final stage. This feature can prevent huge manual intervention and saves lot of time.
Automated end-to-end regulatory process
The entire trade regulatory processes should be streamlined and automated, which should simplify operations and create business values for you. This automated regulatory processes can help ease your complex regulatory challenges and enable focusing on your day-to-day operations.
Regulatory Technology (RegTech) established a solid foundation within the FinTech ecosystem to overcome this and come up with solutions that are targeted to new and complex regulations, litigation and regulatory remediation areas faced by financial institutions (FI), combined with overall reduction in cost compliance. RegTech is a seamless way for Financial institutions to meet these requirements, without the need to overhaul their existing models entirely. RegTech is poised to be the future of facilitating compliance management and minimize regulatory risks.
Despite overcoming these challenges, financial firms should be equipped with technology enablement to achieve operational efficiency. These technologies should be more adaptable, configurable and scalable to the existing regulatory systems, which should enable investor protection and avoid business risks.
Complying with regulations is becoming a more complex and cross-functional effort. Due to the growing importance of cyber security and the increased regulatory requirements, financial firms are employing emerging technologies like Robotic Process Automation (RPA), Cognitive Analytics, Machine Learning, and Artificial Intelligence to stay ahead of the regulatory burden.
This article will emphasize about the greater focus of a volatile financial industry where many financial firms are coming forward to reengineer their risk management programs.
48% of surveyed financial firms are planning to reform their risk infrastructure by deploying new technologies. Financial institutions face challenges that evolve time-to-time with more complex and uncertain risk scenarios, and this induces the firms to reconsider their traditional methods and implement primarily new approaches.
According to Deloitte survey, only a few institutions were reported using 48% - cloud computing, 40% - big data and analytics, and 38% of business process modeling tools, and shockingly only 29% implemented the cost-effective RPA to its full potential.
Other tools used by even fewer institutions are machine learning (25%), business decision modeling tools (24%), and 19% of cognitive analytics.
These tools can reduce costs by automating error- prone manual tasks such as developing risk reports or monitoring transactions. They also monitor the data in/out from multiple sources to mitigate risk associated with the trade transactions, and few banks are looking to identify potential threats before the situation arises.
The two key focus for re-engineering the risk management is to handle the Increased needs of cybersecurity and the evolving regulatory requirements.
Handling Cybersecurity in Compliance:
As per the Deloitte Survey, 67% of the firms thought cybersecurity as one of the risks that would increase over the next two years, far more than for any other risk.
Few of the financial industry experts focus on mitigating the risks that pose from the cyberattack. Data sharing among the financial firms and the technology partners would lead us to the best cyber governance and will help in detecting the threat before too late.
Evolving Regulatory Requirements:
Most of the financial institutions, while assessing the overall effectiveness, found that their firm’s system to be very effective and expect the regulatory requirements to grow over in the next 2 years.
Regulators not only need the financial firms to adapt to the evolving regulatory requirements, but they want it to be implemented effectively. These challenges increase the cost of compliance, and many management executives realized the need for emerging technologies to overcome the evolving regulatory requirements.
The emerging technologies seem to offer huge potential to re-define the risk management, but still many financial firms struggle to make the informed decisions with great uncertainty about the scalability of the system while the regulatory process keeps on evolving.
This might help overcome the error-prone manual regulatory process through artificial intelligence and machine learning capabilities.
RPA can effectively lower your operational cost
It can identify the anomaly patterns and will help avoid illegal transactions
RPA can automate end-to-end regulatory processes and avoids manual intervention
Creating a human though process in a structured model could help untangle the regulatory complexities in a process.
Creates risk models which forecasts illegal activities
Accurate analysis of unstructured silos of data
Deploys legal check on the existing and potential clients
The distributed ledger might help in data aggregation, which solves the cyber security issues and will help in detecting the threat before too late.
Enables digital data/ledger management to avoid illicit interpretation of the data
Reduces manual task of reporting by uploading the data on shared ledger, which makes the transaction more transparent
Due to data transparency, enabling Know-your-customer (KYC) areas is much easier and efficient
These advanced analytics will help to analyze the data trends to mitigate future threats.
Minimizes the risk of non-compliance and identifies regulatory gaps
Analyses the user behavior to detect fraudulent activities
Stress test business performance under varied market conditions
Risk Management requires a regtech system that can be scalable to any new regulatory requirements. The emerging technologies re-fuel the RegTech to rise and sustain the disruption to grow beyond the limits. RegTech solution providers play a vital role in this strategy by transforming the way the industry works and they should have deep rooted regulatory expertise and the business methodology, which will help understand the client’s business values and help them achieve regulatory excellence.
In today’s critical and regulation-based trading scenarios, the best implementation of FIX testing is required to meet regulatory requirements and to create an optimum risk averting environment at the lowest operational cost.
Over the period, trading operations are converted into complex grids of various multiple applications with diversified technologies coerced into an inclusive trading infrastructure. Testing has evolved with cluttered and varied deployments, which made the firms lack an overall ‘enterprise’ perspective, instead of depending on a multitude of different testing scenarios.
Automating the expensive and error-prone process of manually testing trading systems will reduce the dependencies on counterparty test environments, and It enables trading firms to quickly simulate trade scenarios, which impacts the firms to realize the trading system’s reliability and efficiencies before going live with complex environments.
Testing should be deployed from client mode for complete connectivity, functional and performance testing system should run from interactive GUI mode.
A positive and negative use-case scenario of buy-side, sell-side, venues and intermediaries will be tested, and It can be widely used during all stages of the System Development Life Cycle to assist developers during unit testing, quality assurance (QA) testing, certification, and post-deployment maintenance.
Enabling the seamless infrastructure validation will lead the system to much better and efficient scenarios, which are the basis for implementing best practices and it includes,
A comprehensive, accessible view of deployment, management, results, and reports.
Real-time view of testing progress through dashboards.
The complete enterprise testing deployment will be consolidated. Previous test case results will be stored and analyzed.
Firms without best test case strategies will either pay a hefty fine or hit with huge trading loss and reputational risks if their trading system breaks down. Infrastructure validation helps to automate the expensive and error-prone manually testing, which reduces dependencies on counterparty test environments. The industry standard for comprehensive FIX testing offers an enterprise level approach to validate the complete trading infrastructure to meet today’s complex testing. Testing and deployment need to be part of a trading strategy and the solutions to execute low latency trading.
What’s required is the ability to maintain and test on an organization’s scale; to create an error-free infrastructure while reducing the cost and improving the operational efficiency.
Try downloading ‘An Enterprise Approach to Trading Infrastructure and FIX Testing’ to learn more about how to overcome the trading Infrastructure challenges and to benefit from its business advantages.
FIX engine is a FIX protocol-based messaging infrastructure designed for high-frequency trading and to facilitate the online trading and it is available in Java & .NET. FIX engine is an implementation of FIX protocol and a piece of software required to establish FIX connectivity. FIX messages which carry trading orders electronically in the form of tag and value is composed, parsed and understood by FIX engine.
FIX engines are also responsible for establishing FIX connectivity between client and broker or client and exchange.FIX is now used by a large group of firms and vendors. It has clearly emerged as the preeminent global messaging protocol. FIX has grown from its original buy-side to sell-side equity trading roots and exchanges, ECNs and other industry participants now use FIX.
Users can easily integrate FIX Engine with any other software application such as API, FIX implementation tools, monitor suits and simulator. FIX engine is a suite of program built for session management, FIX Standard Message framing, connectivity, listener and initiator etc.
Benefits of standardizing communications using FIX protocol –
Some of the benefits of the widespread use of a standard messaging protocol are
Reduced cost and complexity of integrating various internal activities
Increased ability to share infrastructure in terms of software, hardware and support staff
Less need to rekeying and translate data, which lowers costs and results in fewer errors
Easier monitoring of the overall positions of markets and flows within them (eg, for regulatory purposes) as the inputs are supplied in the same format and use of the same protocol
PhiFIX Engine, Re-Shaping trading experience with Seamless communication!
Sensiple launched PhiFIX, a suite of Multi-protocol (FIX, EMAPI, FAST, ITCH & OUCH) based messaging infrastructure to streamline electronic communications in the financial securities industry. It implements the automated trading of multi-assets, including securities, derivative, and other financial instruments.
This suite influences increased connectivity, operational efficiency and low latency in trading platform. The differentiator of PhiFIX is, it is comprehensive, robust, scalable FIX Connectivity solution, which supports Multiple Asset Classes, FIX functionalities in Pre-Trade, Trade and Post-Trade, FIX Message Formats and various order routing systems.
Few Implementation Done using PhiFIX – for Buy-side, Sell-side and Venues
Basic Order Flow
IOIs and advertisements
Market data and Reference Data
Clearing and Settlement Scenarios
Multi-leg Order flow
Security and position reporting
A Seamless Connectivity Platform for the Trading Participants!
High Performance through FIX Session Layer
Reconstruct a failed FIX session from an application failure with Sequence reset
Messages can be re-transmitted to detect the sequence number gap by resend request, test request, Logon and Logout session-level messages.
Manage the application execution data (order status, requests etc...) for the best implementation practices.
Validates FIX messages, which helps to adhere with the FIX defined Protocols.
Supports FAST compression and decompression.
FIX Engine should be encoded with SSL-based encryption.
FIX Session recovery should recover the FIX session state after restart in accordance with the FIX state model.
Capabilities of a FIX Engine
Best Implementation Practices:
Enable multiple connectivity to various participants using dynamic session creation (Dynamic Session Creation)
Supports Multiple FIX version and facilitate the ease of session handling by parsing message and disposing session.
Dictionary capabilities for validating the incoming messages.
FIX Dialects: A Customized Field/value add capability for flexible FIX message transactions.
A configuration file for session in the server will be uploaded for flexible recovery of fail message on networking using the configuration file.
Ease of Operability:
Detailed view of log file representation.
Admin Console helps the admin to control the session and be the listener (Monitoring & Controlling) and to change the session parameters.
Easy integration of admin console with third party software - TCP connectivity
The console provides updates on every transaction on session level FIX message with time.
It is capable to run on Window and Linux OS
Automatic admin message transaction on session layer after logon.
Message store and back-up ability.
Session creation based on logon message, not other message
Event handling on incoming messages.
Garbage collection controls
Best-in class Infrastructure:
Flexible Application layer interaction (In-bound and Out-bound)
Session can be configured into the Template/Format definition.
Automatic checksum calculator
Quick FIX encoding and decoding.
Option on FIX Fields to allow all values.
Network option settings.
Capable to run Initiator and acceptor instance on single engine.
Incoming message validation and reject.
Malformed message skip or validation.
Single and Multiple Thread session message control capability.
FIX Benchmarking and Security
The Latest Version offered by Sensiple: pfengine v2.11.2959
FIX Engine benchmarked 100k messages per second. Based on the data traffic and matching time order pushes maximum of 100k messages per seconds
FIX protocol supports Encryption 256-bit and elegant log representation of engine and its transaction.
Designed for high frequency trading and ultra-low Garbage Collector type of systems (E.g., ultra-low GC).
Connectivity Failure Handling
Deep interface implementation configured on engine code and Engine direct that connection failure message to application layer which will recover the lost session.
Interesting Facts to know about FIX Engine
Technology Used to build FIX Engine: Apache mina, Java1.8
Multi Asset Capability: The engine designed to support multi-asset classes and developed generic way.
Features: Session template, session management, nuclear connection maintains, rich FIX message transaction and so on.
Supports FIX Session Creation, session role and Closing Session.
FIX Connections can be established and closed except session role.
Flexible FIX message exchange (Send & receive from counterparty)
FIX Message Sample:
8=FIX.4.2 | 9=176 | 35=8 | 49=PHLX | 56=PERS | 52=20071123-05:30:00.000 | 11=ATOMNOCCC9990900 | 20=3 | 150=E | 39=E | 55=MSFT | 167=CS | 54=1 | 38=15 | 40=2 | 44=15 | 58=PHLX EQUITY TESTING | 59=0 | 47=C | 32=0 | 31=0 | 151=15 | 14=0 | 6=0 | 10=128
Sequencing: Session wise sequence can be maintained on either initiator or acceptor.
The Message life cycle includes Framing data, calculating checksum, body length calculation, encoding and decoding and once the transaction completed, the message will be destroyed automatically.
JAVA can be efficiently implemented, while reporting errors & connectivity issues though Interface implementation, which helps application to identify the errors and connection problems.
Sessions Events & Listeners: Every session or listener was connected on unique port for identification of client and server. The FIX message are distributed across the session with the help of events.
Session Objects: Session holds all feature configuration, admin message responsibility, dialect and dictionary.
Transform your trade communication with the substantial operational and cost advantages through PhiFIX Engine and enable seamless trading with low latency communication. Sensiple offers flexible delivery options and as well it delivers highly scalable end-to-end FIX Enterprise solution with 24/7 customer support.
The evolving requirements of ESMA and Market Abuse Regulation (MAR) persuade Reporting Entities to strategize the reporting structure of a trade. Since MiFID II implementation, it is aiming at increasing investor protection by creating a more efficient, risk-aware and transparent market for investment services and activities.
This regulatory initiative has been described as the “biggest overhaul of financial markets regulation in the EU for a decade” and provides a significant extension of the previous MiFID regulation with a broader regulatory scope and more stringent rules for investment firms — such as banks and other providers of investment services — as well as for regulated markets and data reporting services providers.
To comply with the evolving regulatory processes, every financial firm needs to stay familiar with the MiFID II’s reporting processes. This article will provide you an overview of ESMA’s MiFID II reporting structure and its flow.
MiFID II Reporting to the Regulatory Bodies:
What is a Financial Regulatory Body & what is the major role played!
A financial regulatory body, regulates the financial firms which provides services to consumers and maintains the integrity of the financial markets. As a supervisory authority, every regulatory bodies aim at the fair and orderly operation and the transparency of the financial markets by ensuring that listed companies provide correct and complete information. It enables the establishment of financial services by verifying that financial institutions comply with rules of conduct.
The below diagram emphasizes the reporting scenarios that market participants will need to adhere in order to implement the standardized regulatory compliance.
Reporting by Trading Venues:
Reporting by Investment Firms:
The Transaction Reporting adheres under the RTS 22, which requires the investment firms & trading venues to report complete and accurate details of transactions in financial instruments no later than the close of the following working day as per Markets in Financial Instruments Regulation (MiFIR).
The technology enablement should integrate 65 required transaction reporting fields however it should also ensure the data security. Also there is a need to certify connectivity to the new and existing ARMs, and help the clients for submitting initial and amended transaction reports.
The MIFID II / MiFIR transparency reporting consist of 2 core transparency obligations.
Pre-trade transparency - Designed to provide market participants with near real time publication of basic trade data.
Post-trade Transparency - Designed to provide market participants with near real time publication of executed trades
Once the participants submit their reports, Approved Publication Arrangements (APAs), and Consolidated Tape Providers (CTPs) might further report this to NCA. The transparency could help the authorities to monitor the complete risk and the market exploitation.
As per RTS 1 - Transparency requirements for Trading Venues and Investment firms for Shares / depository receipts / Exchange traded funds / certificates will be handled and this transaction has to be reported within 0 to 15 minutes.
RTS 2 - Transparency requirements for Trading Venues and Investment firms for Bonds / Structured Finance products / Emission allowances & derivatives will be handled and this transaction has to be reported within end of the transaction day.
Best Execution Reporting
As per PwC, Best execution is achieving the best possible result for customers when executing their orders via execution venues or OTC. MiFID II looks for transparency over financial institution order execution and the Regulatory Authority, which requires the investment firms to evaluate whether the execution quality achieved corresponds to the quality promised in their best execution policies.
As per RTS 27 (For Trading Venues), This Regulation lays down obligations on execution venues to publish data relating to the quality of execution of transactions. It shall apply to trading venues, systematic internalizes, market makers, or other liquidity providers.
As per RTS 28 (For Investment Firms), This Regulation lays down rules on the content and the format of information to be published by investment firms on an annual basis in relation to client orders executed on trading venues, systematic internalizer, market makers or other liquidity providers or entities that perform a similar function to those performed by any of the foregoing in a third country.
According to the ESMA, investment firms should provide a complete breakdown of positions held on own account and on behalf of clients as the investment firm can end up holding a position.
As per RTS 21, Trading Participants must report on a daily basis a complete breakdown of their positions in commodity derivatives, emission allowances and derivatives of emission allowances, client & Clients of those clients & so on to the end client. On weekly basis the aggregate positions held will be published. The limitation per file for reporting is restricted as 50,000 records per file and if the count exceeds, then it will be submitted as multiple reports.
ESMA highlighted that it is trade participants’ responsibility to assess the transaction results.
Algorithmic Trading Reporting
Under MiFID II, EU regulators began enforcing rigorous requirements on firms using algorithmic trading strategies and systems, which has been explained in Regulatory Technical Standard 6 (RTS 6). Also, firms need to carry out an annual self-assessment and validation of their algorithmic trading activity against the regulatory requirements. Moreover, these assessments result can also be requested by regulators at adhoc basis.
As per RTS 6, As part of its overall governance and decision making framework, an investment firm shall establish and monitor its trading systems and trading algorithms through a clear and formalized governance arrangement, having regard to the nature, scale and complexity of its business.
MiFID II needs the firms to ensure that outsourced arrangements should comply with RTS 6.
Financial Instruments Reference Data Reporting
As per ESMA’s Reporting Instructions, trading venues firms need to submit identifying reference data for the relevant financial instruments to their competent authorities who are required to transmit it to ESMA for subsequent publication on its website. This is in particular required to support the scope of transaction reporting under MiFIR, as well as market abuse surveillance activities under MAR.
As per RTS 23, The Markets in Financial Instruments Regulation (MiFIR) requires trading venues to provide competent authorities with identifying reference data for the purposes of transaction reporting. For the purpose of effective market monitoring by competent authorities, reference data for financial instruments should be reported in a consistent format and according to specified standards.
Double Volume Cap Reporting
This reporting limits the trading in the Dark Pools by involving a CAP on the use of 2 transparency waivers.
As per London Stock Exchange, there are 2 systems;
Reference Price Waiver (RPW)
Systems matching orders based on the midpoint within the current bid and offer process of the trading venue where that financial instrument was first admitted to trading or the most relevant market in terms of liquidity.
Negotiated Trade Waiver (NTW)
Systems that formalize negotiated transactions.
As per RTS 3, This Regulation sets out, the details of the data requests to be sent by competent authorities and the details of the reply to those requests to be sent by trading venues, approved publication arrangements (APAs) and consolidated tape providers (CTPs), for the purposes of calculating and adjusting the pre-trade and post-trade transparency and the trading obligation for derivatives as well as to determine whether an investment firm is a systematic internalizer. Total volumes of trading reported separately for each trading venue.
The looming MiFID II regulatory challenges can only be addressed by partnering with the right RegTech solution provider, who can alleviate the challenges ahead. With the technology enablement, the firms can transform the regulatory challenges by automating end-to-end regulatory data collection, validation and submission. It also validates the risk and manages the exception along with the end-to-end automated regulatory processes without any manual intervention and convert it into acceptable MiFID II/MiFIR regulatory requirement format with one-time configuration. Read here to transform your Regulatory Challenges into business opportunities.
One of a leading multi-commodity exchange in India, provides a platform for market participants to trade in commodity derivatives. The exchange started feeling the heat due to the complexity of testing multiple trading environment for each trade and it was in need to transform this challenge into an opportunity.
The complexities arose due to the validation of all exchange related services from Pre-Trade to Post-Trade and maintaining its consistencies with the counterparties, which caused difficulty in generating, maintaining and integrating the test environment. The multiple Exchange Gateway handled high volume market data processing, which was tested under various challenges. And automating this entire Testing process has incurred high cost. The longer test cycles delayed the entry to the production environment, thus increased the risk in business continuity.
So, Sensiple’s FIX team understood the pain areas and Implemented PhiFIX, a Testing Suite to mitigate the business challenges with the following solutions
Multi-level Test case validations
Migration of test scenarios in one click
Functional Test automation
Test Result and Archive result with GUI report
Customized FIX dialects
Test multiple gateways
Through the proposed solutions and our domain expertise and deep understanding of trading functionalities, the Exchange has achieved the following results using PhiFIX Test Suite
Measured order handling time
Single test solution for multi- protocol (FIX & FAST)
Increase their testing accuracy & QoS
Accelerated test results
Faster time to market
Improvement of testing efficiency
Reducing the operational expenses
PhiFIX helped the commodity Exchange to get an edge over its competition with the testing application, which performed seamlessly in real time and adapted holistic testing strategy.
To know more about how PhiFIX enables the opportunities, write to us or schedule a call.
There was a time, when the traders can’t get out of their desk and it still exists at few places. This could bring down the efficiency and the accuracy of trading. After all, it is in human’s nature to err.
The number of smartphone users around the world has increased from 2.1 Billion in 2016 to 2.5 Billion in 2019 and the number is not going to plummet instead it’s going to rise! This millennium is in need for Speed, Accuracy and Efficiency. So, make your trading simple & efficient with on the GO Mobile Trading.
Mobile Trading is a radical application, which includes comprehensive trading and market monitoring platform. It offers real time streaming quotes, charts, market depth and the ease to trade hassle free across all asset classes anywhere and at any time.
With Mobile trading, investors can access trading platforms from their mobile phones rather than being restricted to traditional trading methods via computer. This technology allows the user for smart phone access to actively manage their portfolios even when they are away from a desktop/laptop.
Trading through the Smartphone can keep investors up to date with the latest most important impactful events on the financial markets around the world and in the local environment. This in turn affects the big shot financial firms in a direct way, as their reactions will be based on the results of these events and their effect on the market as they happen.
Why you should choose Mobile trading?
View Market News, Trade History, Order History, notifications and details
Access to Live Quotes, announcements and news feeds.
Examine the market statistics on weekly or monthly basis through data visualization
Manage multiple accounts
Guarantee the security and safety of your trades
Regulated by the Commodity Futures Trading Commission (CFTC)
Live Market Data with Robust Technical Analysis tools
Market monitoring, Portfolio Positions & Holdings
Investment Account view and details
Create watch lists to monitor the market & customize it as per your requirement
Graphical view of stock performance
Archived market statistics
Business Capabilities of Mobile Trading Platform
Upsurges Accuracy in Trading
All the orders which has been placed by the Investors will be received by the stockbrokers through Order Management Platform. Both the parties have transparency, which minimizes errors such as incorrect order quantity, pricing etc. and in turn increase the trading accuracy.
Lowers Operational Costs
Through the mobile trading platform, stockbroking firms provides a platform for thousands of Investors to get connected with various exchanges and place orders instantly. This reduces the resource cost involved in the manual operations such as voice call, message, fax etc.
Ease the processes to enable the trade volume
The platform displays enormous Market data for the Investors by connecting with multiple stock exchanges across the globe. At a single screen, Investors will get various options irrespective of trading products which opts them to trade on multiple markets and thus increases the trading volumes.
Eliminates manual Intervention
With the help of the platform, Investors can place their orders and view their trading history & transactions without any intervention. Investors can also get rid of any frequent calls, messages.
Simple & Secure:
User-friendly Platform for easy accessibility and secured transactions with high transparency.
It can be accessed through Mobile (Android & iOS users), Desktop and web based.
Sensiple’s Swapcue is one such mobile trading application for Sell Side institutions & their clients to place and track their orders on the go, with Real-Time Market Data.
With Swapcue, you can perform stat-of-the-art trading capabilities and can benefit by increasing your trade volume.
If you are not a big believer of Mobile Trading Platform, It’s time to embrace the change, for good! To know more about Swapcue, write to us or drop an enquiry.
The current trending initiative from FIX Trading Community is the new process to automate initial public offerings as the UK regulator reviews technological innovation in primary market services.
The digitizing of IPO Processes like submitting applications and receiving allocations are currently in manual process, which increases risk. These manual applications are huge in trade size so there is a vast chances of risk if they are miscommunicated.
Also, as an equity IPO offer period can run for several weeks without the investor’s awareness of its commitment/exposure to a wrongly placed or received application.
To resolve all such issues in manual IPO registration, FIX Trading community has come-up with an initiative, which successful tested the new process that allows straight-through processing of an IPO for the first time. The test includes sending the application directly from a buy-side order management system to sell side firm.
As per FIX Trading Community’s best practices document for the automation of IPOs.
“The benefit from the asset manager’s perspective is not only greater clarity and efficiency but this will also provide the added value of a fully audited, time-stamped order generation process that has already cleared an asset manager’s pre-trade compliance checks to ensure no breach of mandate or risk control before it could be sent to the deal manager,” mentioned in the white paper.
FIX Protocol has just tapped the infinite opportunities in IPO Automation Processes in the primary market.
It is recommended to create STP for sending new issues electronically using FIX protocol from asset manager’s OMS to deal managers. Also, it supports
Buy side firms for receiving e-confirmation of their allocation using FIX based integration.
Technology for scalable of deals any size and for any number of asset managers
Asset managers to enter the applications either via a web interface or their trading systems using FIX messaging.
Fully Audited, time-stamped application generation process
Ensuring pre-trade compliance and risk control before sending to the deal manager
Our dedicated R&D team is on this initiative. Our capability in Multi-Protocol (FIX, FAST, EMAPI, ITCH & OUCH) messaging infrastructure is helping us to tap in this technology space.
Would you be more interested in knowing how sophisticated we are in FIX Protocol? If so, schedule a call or Write to us.
Decades ago, there was a period where the Internet hadn’t existed. Those were the times in which the bidder and the seller met and negotiated the bidding in a physical location (probably a stock exchange). Something similar to the Pit Trading scene in the movie ‘Wolf of a Wall Street’. This pit trading procedure was exhausting and created a lot of chaos.
During the late 19th century, the trading firms realized the need for machine-readable message protocol, so that a trade wouldn’t be dropped or cannot be made complex. Once the world realized the need for the standard electronic communication protocol, FIX Trading Protocol was established and a community called ‘Fix Trading Community’ was formed.
Many trading firms are adapting technology & innovation, to increase the competitiveness of bidding an investment. Also, the technology is initiating the transaction with minimal human interference and sometimes without even the assistance.
What is Fix Trading Protocol?
FIX Protocol is a series of messaging specification to streamline electronic communications in the financial securities industry. It implements the automated trading of multi-assets, including securities, derivative, and other financial instruments.
This protocol is an industry-driven standard, extensively used by buy & sell-side firms, trading platforms, and even regulators to communicate the trade information. This open source platform is frequently being developed to support evolving trading and regulatory needs and is being relied on by many firms to complete millions of transactions every day.
The participants would be
Increased Connectivity: Reduced cost and the complexity of a connection allows brokers, investment management firms and trading platforms to achieve a more optimal level of domestic and global connectivity.
Adapting to Market Dynamicity: FIX provides a platform on which competition and innovation in trade and post-trade activities can thrive, affecting interaction among various market participants and making markets more dynamic.
Operational Efficiency: Minimizing the number of redundant, unnecessary messages and enhancing the efficiency of the communication protocol of the client base. The time spent in voice-based telephone conversations can be minimally reduced, and the need for paper-based messages, transaction, and documentation are down to zero.
Low Latency: The connections can be low latency connections with reduced cost and complexity. The transactions can attain high speed and transparency with secured connections in multiple connectivities.
Sensiple’s Solution to address the challenges in FIX Protocol:
Sensiple launched PhiFIX, a suite of Multi-protocol (FIX, EMAPI, FAST, ITCH & OUCH) based messaging infrastructure to address the above said challenges in Capital Market Industry. The differentiator of PhiFIX is, it is a comprehensive, robust, scalable FIX Connectivity solution, which supports Multiple Asset Classes, FIX Message Formats and various order routing systems.
If you would like to know more about FIX Protocol, write to us @ firstname.lastname@example.org or if you want to consult our expert team, call us +1 855 223 822
The innovation team at Sensiple make sure they are technically up-to-date when it comes to RegTech & its applications. The financial industry is growing tremendously day-by-day and the firms are demanding a comprehensible platform to work seamlessly with the regulators.
When the industry expertise meets innovation, there ascends a user-friendly application, which can solve this millennia’s regulatory problems. An end-user, a techie and an innovator works together at Sensiple, to create a seamless platform for regulatory solution for the millennials.
Only technology & innovation can make a financial firm’s life easier. That’s how we crafted a Global RegTech Analytical Platform, Setrega for banking and financial institutions, where they can employ this comprehensive suite for complying with one or more Regulatory Authorities.
Being a financial institution has its own perks and cons. The institution has to adhere the compliance and the regulations; be it any scenario.
Instead of a manual regulatory process adhering, the institution can integrate Setrega, a Global Regulatory Analytical Platform to receive regulatory data & process them to regulatory reports in specific formats with minimum customization effort.
Reason for you to choose Setrega!
Anything & everything can be Automated: No more manual interference and everything is automated which can save your time.
No more non-compliant: The firms can sit back and relax, as the regulations will be amended as per the statutory directives.
Unlimited Scalability: No matter how big the connections, volume of data, number of reports and formats grow, Setrega can scale anything and everything.
Transparency: The client has the full control over data and not the other way around.
Dashboard: A place for the experts to play around the data; access and analyse it.
Regional Coverage: Tested and deployed successfully with major regulatory frameworks like MiFID II and NFA and regulatory authorities like SEC and SFC.
When you scale your firm to the global level, you obviously need to embark on regulations, which emphasize your need to adapt to a revolutionary RegTech solution and Setrega will help you in reaching the global standards for complying with the regulatory authorities in BFSI sector.
Shoot your queries to know more about RegTech’s disruption in financial industry
Every now and then, emerges a buzz word, which surges its industry growth exponentially. Such buzz word is ‘RegTech’, which is deciphering the regulatory concerns for many firms. Comparing to other industry, the most alarming victims of compliance are the BFSI sector. Being non-compliant, either affects their reputation/business or they lose a lot of money on penalty.
So, let us discuss in this blog on how RegTech is impacting the way the financial institutions operate their regulatory frameworks.
What exactly is RegTech?
As per CBInsights, "RegTech (Regulatory Technology)" utilizes information technology to enhance regulatory processes. The objective of RegTech is to enhance transparency as well as consistency and to standardize & automate the regulatory processes by emphasizing on regulatory monitoring, reporting and compliance.
Why RegTech and why now?
The aftermath of global financial crisis has stressed the focus on regulatory compliance in financial services industry, which has pushed the regulatory bodies to tighten the practices on financial institutions.
The number of regulations a financial firm has to comply has grown since last decade. Also, the financial institutions are put up with the massive competitions with the FinTech newbies and in order to overpower the competition and to imply as the top player, they are entailing with RegTech, as this technology is here to solve their complications much faster & easier with automation.
RegTech is resolving the regulatory and compliance issues and providing answers to the unsolved questions by doing wonders with the data.
RegTech helps to operate more easily and efficiently. Be it any kind of data or the volume of data, RegTech solutions can handle it more seamlessly.
Generate your regulatory reports without manual interruption. RegTech is capable of accepting source data in any format and can convert it into acceptable regulatory reporting format with one-time configuration. Source Data synchronization, Report generation and Submission can be scheduled in Weekly, Monthly and Real-Time basis.
Financial Firms need not worry about new regulations or amendments to statutory directives. The RegTech solution can provide flexible data source configuration, API mapping and reporting format changes with minimum customization in product level. It ensures major relief from regulatory risks and compliance risks of various regions.
The RegTech solution is scalable in terms of increasing number of connections, volume of data, number of reports and formats, increased number of submission modes and regulatory authorities.
Handling huge volume of data always has a challenge of managing data, exception handling, error correction, and auditing. RegTech solution makes it simple and allows clients to have full control over data by powerful data transparency method to handle reports, identify error data, malformed information, and manual correction.
RegTech is more than a FinTech
Unlike FinTech, RegTech can be used to provide regulatory solutions to other industry firms.
Every firms are looking to have an upper hand by exploiting the data through analytics. RegTech start-ups are providing useful tools to monitor market participants using newsfeeds, chats and emails. Also, the data among traders over multiple channels are put to use for better market research.
One such product is Sensiple’s RegTech solution termed ‘Setrega’.
Setrega can resolve your firm’s regulatory concerns, if you are facing any one of the following challenges, our Innovation team can help you out. Do you have,
Complex Reporting Data Management and Report Configuration
Frequent changes in regulatory report structure
Data validation requirements in report generation
Handling multiple data sources in many input systems
Setrega, a Global RegTech Analytical Platform can handle multiple Data Input Source and Formats.
The solution provided was much comprehensible with,
Flexible Input configuration with minimum customization effort
Setrega Data Management using Reference Data Engine and Achieve Mechanism
User Interface to modify Regulatory Reporting Template / API
A dynamic Alert configuration in Report Generation module
Our solution can help you to meet your compliance standards and work along to ensure compliance, audit and risk flows are adhered with the cutting-edge technology implementation.
Oops! Sorry I gave you more than 6 reasons to adopt RegTech. Want someone to help you out in knowing more about RegTech solutions and the products. Give us a call we would be happy to show you a demonstration!
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