TRAction have noticed that firms reporting under various reporting regimes have been unclear on who is the party that ‘makes’ or ‘takes’ the payment in the leg of a transaction. The ASIC Technical Guidance provides assistance on how to compete various items within Table S1.1(1): Transaction information (Table).
TRAction looks at the ASIC requirements and how to complete the data fields in the Table (the concept is similar for EMIR and other CDE harmonised reporting regulations).
Is ‘Make’ and ‘Take’ the same as ‘market maker’ and ‘market taker’?
No, they are not the same and the concepts should not be confused with each other.
‘Market makers’ act by initiating transaction orders and making the market liquid – basically influencing the market price with their pricing power.
‘Market takers’ are those who execute transaction orders, accept the prevailing market price and are essentially consuming liquidity.
These are different to the ‘make’ and ‘take’ concepts which focus on the actual making and receiving of payments in a leg of a transaction.
How to identify the roles of the parties in Direction 1 and Direction 2?
Direction 1 (Item 14)
Direction 1 of a transaction shows (for certain types of OTC derivative contracts (OTCs)) whether the reporting entity is the buyer (BYER) or seller (SLLR).
Direction 1 is not required where a value for Direction 2 – Leg 1 is required. Direction 1 or the identification of buyer/seller, is only required for OTCs:
- where a UPI is reported for a forward (excluding FX);
- that are options, Contracts for Difference (CFDs) (excluding FX CFDs) or Credit Default Swaps (CDSs);
- where an OTC’s underlier relates to a measure of variance, volatility or other attribute that may change in value (excluding its price); or
- where a value is not reported for Direction 2 – Leg 1.
Direction 2 (Items 15 and 16)
These fields identify which party in the leg of Direction 2 of a transaction is the party who ‘makes’ and ‘takes’ a payment. These fields are required for:
- most swaps – interest rate swaps, credit total return swaps and equity swaps (excluding CDSs, variance, volatility and correlation swaps);
- FX swaps, forwards, non-deliverable forwards; and
- FX CDFs.
Leg 1 (Item 15) – This identifies whether the reporting entity is the payer or receiver for this leg. It is a conditional requirement to have either ‘MAKE’ or ‘TAKE’ reported in this item. The ASIC Technical Guidance provides that for certain types of OTCs, the parties to Leg 1 in Direction 2 of a transaction, are as follows:
– Payer = party making the payment (MAKE); and
– Receiver = party receiving the payment (TAKE).
Leg 2 (Item 16) – This identifies the parties in the opposite roles as described for Leg 2 in the transaction i.e. the reverse of Leg 1. If Leg 1 of Direction 2 is required to be reported, Leg 2 of Direction 2 must also be reported.
There must be a value listed for either:
- Direction 1; or
- both of Direction 2—Leg 1 and Leg 2.
Example – Application of Direction 2
ABC Brokerage firm enters into an FX Swap with its client trader, XYZ. XYZ wishes to trade by buying 100 lots of AUD/USD and swap at the end of 2 weeks. The current currency pair is AUD/USD: $1.50. At time of entry into the FX Swap, XYZ pays AUD150 for USD100.
At the 2 week mark, there will be a reverse-direction exchange of these two currencies and at this point of the exchange, the currency pair has shifted to AUD/USD: $1.60. This means XYZ will receive AUD160 in return for the exchange of the USD100 and has therefore made a profit of AUD10.
Leg 1 – Item 15
Date of entry into Contract:
FX Swap Contract
Leg 2 – Item 16
2 weeks later:
How can TRAction assist?
If you need assistance in understanding the requirements under the global trade reporting regimes and how to do your reporting, please get in touch with us.
