Markit BOAT working to tuck trade reporting gaps

LONDON (Reuters) - Markit BOAT, a platform for reporting European over-the-counter equity trades, is working with clients to change the practice of delayed reporting, which sometimes defeats the purpose of new European Union rules.

Mandatory transparency rules on share trading came into force across the bloc last November with the introduction of the Markets in Financial Instruments Directive or MiFID.

However, MiFID allows reports on trades of a certain size to be delayed by up to three days, depending on the size of the trade and the average daily turnover of that security.

"The practitioners that are reporting OTC trades ... have used, by and large, the lowest common denominator approach: if it's capable of being delayed, it will be delayed to the maximum," Markit Managing Director Will Meldrum told the Reuters Exchanges and Trading Summit on Wednesday.

"That's not that handy for professionals in the market, neither for the buy side nor the sell side, mainly because some trades don't need to be delayed, and some don't need to delayed as long as they are," Meldrum added.

Markit BOAT is working with both the buy side and the sell side on best practice guidelines for "appropriate and measured" delays.

"We know that of all our trades -- we do around 25-30 billion euros per day across the platform -- around 25-30 percent is delayed, by one hour to three days," he added.

As soon as a party has completed a large, time-consuming trade, it should be disclosed to the market, Meldrum said. "If they're off risk or have never been on risk in the first place, then that trade should be reported."

Markit BOAT expects to execute the best practice document this quarter in what will be an on-going process, with some clients managing delays differently from day one and others having to adjust their systems first.

MUM'S NOT THE WORD

Markit supplies data on a number of asset classes, including in the credit derivatives and structured credit markets, which have been at the heart of the financial crisis.

Politicians and regulators have issued calls for transparency in these markets as a way of alleviating the symptoms of the financial crisis, but Meldrum said the matter was more complicated than that.

"Everyone talks about transparency, but unless you've gone into the trenches ... you don't really understand how difficult it is," he said.

For credit, many of the solutions applied to cash equities and enshrined in MiFID are not realistic, as the underlying instruments are not usually actively traded.

He said there was little appetite on the part of regulators to act and create regulation that would have unintended consequences.

However, he said, "there is a huge desire for more objective valuations and pricing, and that needs to happen".

Markit can provide data that improves the quality of pricing here. "Models are easy. Everyone's got models. It's the inputs that are difficult."

Markit BOAT clients send trade reports on up to 9,000 stocks every day, as well as bids and offers on up to 900 stocks.

The platform has 25 reporting clients. Meldrum declined to comment on the number of its data clients.

(Editing by Will Waterman)