Topic
Transaction reporting
Date:
25 July 2023
Regulations
Commission Delegated Regulation (EU) 2017/590 (RTS 22)
Commission Delegated Regulation (EU) 2017/585 (RTS 23)
Level of significance of change
No changes are required. The aim of FCA Market Watch 74 is to improve the quality and accuracy of transaction reporting and financial instrument reference data used by firms they regulate.
Main points
Despite the Market Watch 70 release by FCA encouraging firms to utilise the transaction reporting data extract on the Market Data Processor (MDP) portal, there are still firms who are not aware of its existence. It is a requirement to conduct reconciliations, according to Article 15(3) of RTS 22 and failure to do so is a breach of reporting obligations.
The number of errors and omissions submitted to the FCA has dropped and according to Article 15(2) of RTS 22, firms are required to notify the FCA upon identifying errors in transaction reports. The Errors and Omissions form should contain thorough details of when an issue first occurred and the number of transaction reports affected, even if this extends beyond 5 years. Cancelling and resubmitting of trades older than 5 years of the submission date is not required.
In terms of Investment and Execution Decision Makers, there has always been unclear direction as to the exact criteria required for reporting this field. The FCA has now advised that firms should consider senior management with limited practical involvement in overseeing the investment or execution decisions at a transaction level.
The FCA has also highlighted inconsistencies in price and quantity type fields reported. In cases other than the two financial instruments with specific price and quantity type, being:
- Credit Default Swaps (CDS) – price in basis points, and
- Equity – quantity in units,
firms should ensure the notations selected are consistent with their counterparties.
Where transactions are executed off-exchange, firms are expected to report the MIC code of the trading venue (Section 5.4(1) ESMA Guidelines on transaction reporting). Trading venue transaction identification code (TVTIC) is optional for these transactions.
Incorrect or inaccurate instrument reference data which is submitted to the FCA in error should be cancelled and resubmitted by firms. For spot FX specifically, the FCA has stressed that trading venues should not be submitting instrument reference data for spot FX instruments to FIRDS as they are not required under UK MiFIR.
The FCA stressed the need for firms to ensure they are doing the following to address common errors:
- Price multipliers should reflect an accurate number of underlying instruments, especially for CFDs.
- Expiry dates should be reported with a date after the trade date of the transaction.
- Use Classification of Financial Instrument (CFI) codes which are consistent with the instrument name or other instrument details.
- Trading venues and SIs are reminded that they are responsible for providing timely and accurate instrument reference data to members.
- The transmitting firm is not required to report a transaction as long as the report submitted by the receiving firm contains all necessary information. However, according to Article 4 of RTS 22, it is crucial to have a transmission agreement in place.
How does this change my reporting?
These recent observations from the FCA may necessitate updates or changes to internal processes being conducted by firms to conduct reconciliation and oversight of their delegated reporting provider. For firms using TRAction, no changes are required to current data submission arrangements.
What do I need to do?
Investment Firms should regularly compare and reconcile the transaction reports held at their NCA against their internal back-office systems. TRAction suggests checks be made daily with an end-to-end reconciliation carried out regularly.
Should there be any breach, firms should document thorough details and an adequate background to facilitate a full review of the incident and carry out required reporting to the NCA. TRAction provides guidance to its clients on this process
At TRAction, we are a specialised third party delegated reporting entity who can assist you in submitting your transactions to an Approved Reporting Mechanism.
Please contact us if you would like to know more about how to simplify your reporting.
