The current MiFID II draft suggests that trading venues have to fulfil the transaction reporting for non-EEA exchange members. While it is understandable that regulators want to ensure complete records of all trading activity within Europe, the operational burden could be far-reaching.

Currently, exchanges rely largely on trading interfaces to collect information from their members, but these were never designed for transaction reporting. Most importantly, some of the required information is not available when the order is submitted to the exchange. A short sale flag, for example, is usually determined elsewhere and long after the trade occurred.

Looking at the bigger picture, I start to worry about the extraterritoriality aspects of MiFID II. As discussed previously, non-EEA firms run the risk of being caught in MiFID II’s net, and even if they decide to become a full exchange member they face hurdles such as transaction reporting. It looks like MiFID II will leave few firms unaffected, even from a global perspective.