MiFID II introduces a requirement for all investment firms to publish OTC trades executed outside the rules of a trading venue in instruments that are admitted to trading on a Trading Venue. This requirement was initially introduced for shares in 2007 but will be extended to cover all asset classes with the introduction of MiFID II in January 2018 such as:
- All types of bonds
- Fixed income derivatives
- Equity derivatives
For each trade executed OTC, the investment firm is required to publish the price, volume and time of agreement along with various other data elements for the individual trade. This information has to be made public as close to real-time as possible.
The competent authority can authorize deferral of publication. Such deferrals vary according to the instrument and may be granted for only a short period of minutes and up to as much as four weeks. For shares, depository receipts, ETFs, and other similar instruments the deferral allowed may be between 60 minutes and end of next trading day, where the deferral allowed for bonds, structured finance products, emission allowances, and derivatives may typically be two days but can in certain cases up to four weeks.
Investment firms can only publish their trades via an Approved Publication Arrangement (APA) which requires certification by the competent authority. Nasdaq will apply for the APA certification in due time.
Nasdaq’s APA service is planned to cover all relevant instruments, i.e. not only all asset classes but also all covered EU securities. Customers will therefore be able to use the Nasdaq APA for all their OTC trades to be published.
The service will also support the use of deferred publication of trades where applicable. This will potentially allow for the APA to administer deferrals in respect of Nasdaq Nordic listed instruments on behalf of the customers instead of requiring all customers to administrate deferrals internally. The system will also support the aggregation of trades to the extent this is allowed by the competent authorities.
OTC trade reports sent to the Nasdaq APA will be published via Nasdaq’s data feed which provides extensive coverage globally.
The APA service will be based on existing infrastructure and connectivity. Both INET and Genium INET will be used by the APA. This means clients can connect via existing protocols such as OMnet and FIX. Customers can also send OTC trade reports by using Nasdaq GUI available, i.e. Trading Workstation (Genium INET) and Nordic Workstation (INET). The APA will ensure proper automatic quality checks when receiving trade reports to minimize erroneous trades being sent to the market.