Key Compliance Dates
MiFID III national transposition deadline: September 29, 2025
Level 2 measures application: October 1, 2027
Table of Contents
- Introduction: The Problem with Traditional Logs
- Understanding MiFID II/III Regulatory Framework
- RTS 25: Clock Synchronisation Requirements
- RTS 6: Algorithmic Trading Governance
- RTS 22/24: Transaction Reporting and Record Keeping
- Article 27: Best Execution Duty
- MiFID III Key Amendments
- ESMA Enforcement Focus
- VCP's Technical Solution
- EU/UK Regulatory Divergence
- Conclusion: From "Trust" to "Verify"
Introduction: The Problem with Traditional Logs
In the world of algorithmic trading, compliance audits traditionally rely on log files. But there's a fundamental problem: traditional log files can be tampered with, deleted, or reordered—and there's no cryptographic way to prove otherwise.
When ESMA or national competent authorities (NCAs) request audit records, investment firms present logs that are essentially "trust us" documents. The regulator must accept them at face value, with no mathematical guarantee that the records haven't been altered since their creation.
VeritasChain Protocol (VCP) v1.0 addresses this gap by providing cryptographically verifiable audit trails that meet and exceed MiFID II/III requirements.
Understanding MiFID II/III Regulatory Framework
The Markets in Financial Instruments Directive (MiFID) framework comprises multiple regulatory instruments:
| Instrument | Description | Status |
|---|---|---|
| MiFIR | Markets in Financial Instruments Regulation | Directly applicable |
| MiFID II | Directive 2014/65/EU | Requires national transposition |
| MiFID III | MiFIR Amendment (EU 2024/791) | Effective March 28, 2024 |
MiFID III came into force on March 28, 2024, with national transposition required by September 29, 2025. However, key Level 2 measures are delayed until October 1, 2027.
RTS 25: Clock Synchronisation Requirements
RTS 25 (Commission Delegated Regulation (EU) 2017/574) establishes precise clock synchronisation requirements for trading venues and their members.
Precision Requirements
| Activity Type | Maximum Divergence | Granularity |
|---|---|---|
| High-frequency trading (HFT) | ±100 microseconds | 1 microsecond |
| Algorithmic trading (voice/request-for-quote) | ±1 millisecond | 1 millisecond |
| Non-algorithmic trading | ±1 second | 1 second |
UTC Traceability
All timestamps must be traceable to UTC as broadcast by a timing centre listed in the BIPM Annual Report. This requirement ensures cross-border comparability of trading records.
VCP-TIME Support
VCP-TIME provides compliant timestamp management with:
ClockSyncStatus- Records synchronisation state at event timeTimestampPrecision- Indicates achieved precision levelUTCTraceability- Documents the timing source chain
RTS 6: Algorithmic Trading Governance
RTS 6 (Commission Delegated Regulation (EU) 2017/589) establishes organisational requirements for investment firms engaging in algorithmic trading.
Key Requirements
| Area | Requirement | VCP Support |
|---|---|---|
| Governance | Clear lines of accountability | VCP-GOV signing hierarchy |
| Annual Self-Assessment | Risk management review | Audit trail for reviews |
| Pre-Trade Controls | Price collars, max order values | Control event logging |
| Kill Switches | Emergency order cancellation | Kill switch activation records |
Pre-Trade Controls Documentation
RTS 6 Article 17 requires documentation of pre-trade controls including:
- Price collars - Automated rejection of orders outside acceptable price ranges
- Maximum order value - Limits on notional value per order
- Maximum order volume - Limits on order quantities
- Maximum messages per second - Throttling controls
- Kill switches - Emergency halt capabilities
ESMA Enforcement Focus
ESMA's 2024 supervision priorities specifically highlight algorithmic trading controls. Investment firms should expect increased scrutiny of:
- Pre-trade control documentation and testing
- Kill switch activation records
- Annual self-assessment quality
RTS 22/24: Transaction Reporting and Record Keeping
RTS 22: Transaction Reporting
RTS 22 (Commission Delegated Regulation (EU) 2017/590) mandates transaction reporting with 65 data fields, including:
- Trading date and time (to millisecond precision)
- Execution venue identification
- Instrument identification (ISIN)
- Price and quantity
- Buyer/seller identification (LEI)
- Decision maker information
Format Modernisation
ESMA has proposed shifting from ISO 20022 to JSON format for transaction reporting, targeted for Q1 2026.
RTS 24: Record Keeping
RTS 24 (Commission Delegated Regulation (EU) 2017/580) requires order records to be retained for 5 years, including:
- Order identification and sequencing
- Submission, modification, and cancellation timestamps
- Trading capacity indicators
- Short selling flags
- Algorithmic trading flags
VCP-TRADE Coverage
VCP-TRADE provides structured event types for complete MiFID II/III compliance:
ORDER_SUBMIT,ORDER_MODIFY,ORDER_CANCELEXECUTION_REPORTwith all RTS 22 fieldsBEST_EXECUTION_CHECKfor Article 27 compliance- Cryptographic hash linking for 5-year integrity proof
Article 27: Best Execution Duty
MiFID II Article 27 establishes the best execution obligation, requiring investment firms to take "all sufficient steps" to obtain the best possible result for clients.
Key Changes Under MiFID III
While MiFID III abolished the RTS 27/28 reporting requirements (execution venue reporting), the best execution duty itself remains in full force.
| Aspect | MiFID II | MiFID III |
|---|---|---|
| Best execution duty | Yes | Yes (unchanged) |
| RTS 27 venue reporting | Required | Abolished |
| RTS 28 annual reporting | Required | Abolished |
| Internal monitoring | Required | Enhanced (CTP data) |
VCP-TRADE supports best execution compliance through:
- Execution quality metrics captured per trade
- Price improvement tracking against reference prices
- Venue comparison data for policy reviews
MiFID III Key Amendments
Consolidated Tape Providers (CTPs)
One of MiFID III's most significant changes is the mandatory establishment of Consolidated Tape Providers:
| Asset Class | Selected CTP | Target Launch |
|---|---|---|
| Bonds | Ediphy | 2026 |
| Equities & ETFs | EuroCTP (consortium) | 2026 |
CTPs will provide real-time, consolidated post-trade data across all EU venues, significantly improving price transparency for best execution monitoring.
Single Volume Cap (SVC)
MiFID III simplifies the Double Volume Cap mechanism to a Single Volume Cap of 7%:
"Trading under equity waivers (reference price and negotiated trade waivers) shall not exceed 7% of total trading in that instrument across the EU."
Level 2 Measures Timeline
Key Level 2 measures implementing MiFID III changes are delayed until October 1, 2027, including:
- Revised RTS on pre- and post-trade transparency
- CTP operational requirements
- Enhanced systematic internaliser regime
ESMA Enforcement Focus
Recent enforcement actions highlight ESMA's priorities:
Notable Enforcement Cases
- Pre-trade control failures - Multiple NCAs have issued significant fines for inadequate price collar implementation
- Transaction reporting errors - Systematic errors in RTS 22 field population have resulted in penalties exceeding €1 million
- Record-keeping deficiencies - Firms unable to reconstruct order sequences have faced enforcement action
The common thread in these cases: inability to prove what actually happened during the events in question.
VCP's Technical Solution
VeritasChain Protocol addresses MiFID II/III compliance through a layered cryptographic architecture:
Four-Layer Protection Model
| Layer | Technology | MiFID II/III Benefit |
|---|---|---|
| 1. Canonicalisation | JCS (RFC 8785) | Deterministic event representation |
| 2. Hash Chain | SHA-256 linking | Tamper detection, sequence proof |
| 3. Merkle Tree | Aggregate integrity | Efficient bulk verification |
| 4. Digital Signature | Ed25519 | Non-repudiation, attribution |
Performance Characteristics
VCP is designed for high-frequency trading environments:
- Hash computation: ~15,120 events/second (single-threaded)
- Signature generation: ~7,500 signatures/second
- Verification: ~12,000 verifications/second
These performance characteristics ensure that cryptographic audit trails do not become a bottleneck in high-throughput trading systems.
VCP Module Mapping
| MiFID II/III Requirement | VCP Module |
|---|---|
| RTS 25 Clock Sync | VCP-TIME |
| RTS 6 Algo Governance | VCP-GOV |
| RTS 22/24 Records | VCP-TRADE |
| Article 27 Best Execution | VCP-TRADE |
| Core Integrity | VCP-CORE |
EU/UK Regulatory Divergence
Post-Brexit, the EU and UK regulatory frameworks are diverging. VCP is designed to accommodate both regimes:
| Aspect | EU (MiFID II/III) | UK (FCA) |
|---|---|---|
| Best execution reporting | RTS 27/28 abolished | Under review |
| Consolidated tape | Mandatory CTPs | Voluntary approach |
| Volume caps | 7% SVC | Different calibration |
| Record keeping | 5 years | 5 years (aligned) |
VCP's flexible event schema supports compliance in both jurisdictions, with jurisdiction-specific extensions where needed.
Conclusion: From "Trust" to "Verify"
MiFID II/III establishes comprehensive requirements for algorithmic trading transparency, but traditional log systems cannot provide the mathematical certainty that regulators increasingly demand.
VeritasChain Protocol bridges this gap by offering:
- Tamper-evident records - Any modification breaks the hash chain
- Non-repudiation - Digital signatures prove who recorded what
- Efficient verification - Merkle trees enable fast bulk checks
- 5+ year integrity - Cryptographic proof survives retention periods
- Dual-jurisdiction support - Works for EU and UK compliance
The future of compliance is verifiable, not trustable.
VCP enables investment firms to prove compliance—not just claim it.
Verify, Don't Trust.
Resources
- VeritasChain Protocol Official Site
- GitHub: VeritasChain
- IETF Internet-Draft: VCP
- MiFID III (EU 2024/791) - EUR-Lex
- ESMA MiFID II Single Rulebook
This article is provided by the VeritasChain Standards Organization (VSO) for technical educational purposes and does not constitute legal or compliance advice. Please consult with qualified professionals for specific regulatory matters.
Contact: technical@veritaschain.org
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