FAQ

General

What Is Meant By T+1 Reporting?

The T stands for transaction date, which is the day the transaction takes place. The number 1 denotes how many days after the transaction date the initial report of the transaction must be submitted to a Trade Repository. In effect, the report must be submitted no later than the working day following the event.

Can I Delegate Trade Reporting?

Counterparties which are subject to reporting obligations may delegate reporting, however it must be ensured that there is no reporting duplication. When counterparties delegate reporting, they retain the responsibility for the accuracy and timely submission of the reports.

What are Legal Entity Identifiers?

A Legal Entity Identifier (or LEI), is a unique 20-character code that identifies distinct legal entities that engage in financial transactions.

Australia (ASIC)

Do I need to Report?

OTC derivative issuers as reporting entities – to whom should they report under Australian law?

The answer generally depends on how the OTC derivative issuer is set up – whether it is

(1) an Australian entity;

(2) a foreign subsidiary of an Australian entity where the Australian entity is an authorised deposit-taking institution (ADI) or an Australian financial services (AFS) licensee;

(3) a foreign ADI that has a branch located in Australia or

(4) a foreign company that is required to be registered under Div 2 of Pt 5B.2 of the Corporations Act.

(1) Australian entity (i.e. entity, including a corporation, partnership, managed investment scheme or trust, incorporated or formed in Australia)

An Australian entity must report information about all the derivatives to which it is counterparty (subject to the proposed single-sided reporting relief for certain transactions/positions for certain entities – see our separate article “Single-sided trade reporting – how will this help?”).

An Australian entity must report to a trade repository that is licensed by ASIC under the Corporations Act. There is currently only one trade repository that is licensed by ASIC under the Corporations Act – DTCC Data Repository (Singapore) Pte Ltd (in respect of commodity, credit, equity, foreign exchange and interest rate derivatives).

(2) Foreign subsidiary of an Australian entity, where the Australian entity is an ADI or an AFS licensee

A foreign subsidiary of an Australian entity, where the Australian entity is an ADI or an AFS licensee, must report information about all derivative transactions to which it is a counterparty (subject to the proposed single-sided reporting relief for certain transactions/positions for certain entities – see our separate article “Single-sided trade reporting – how will this help?”).

Such a reporting entity can report to a licensed trade repository or a prescribed trade repository on an ongoing basis (subject to certain conditions being met) – see below.

(3) Foreign ADI that has a branch located in Australia

A foreign ADI that has a branch located in Australia must report information about all derivative transactions booked to the profit and loss account of the foreign ADI, or entered into by the foreign ADI, in Australia (subject to the proposed single-sided reporting relief for certain transactions/positions for certain entities – see our separate article “Single-sided trade reporting – how will this help?”).

Such a reporting entity can report to a licensed trade repository or a prescribed trade repository on an ongoing basis (subject to certain conditions being met) – see below.

(4) Foreign company that is required to be registered under Div 2 of Pt 5B.2 of the Corporations Act

A foreign company required to be registered under the Corporations Act must report information about all derivative transactions booked to the profit and loss account of the foreign company, or entered into by the foreign company, in Australia (subject to the proposed single-sided reporting relief for certain transactions/positions for certain entities – see our separate article “Single-sided trade reporting – how will this help?”).

Such a reporting entity can report to a licensed trade repository or a prescribed trade repository on an ongoing basis (subject to certain conditions being met) – see below.

For a reporting entity referred to in (2), (3) or (4) above, such entity may (instead of reporting to a trade repository licensed by ASIC) report to a prescribed trade repository on an ongoing basis by reporting information under the requirements of a foreign jurisdiction, where those requirements are substantially equivalent to the requirements that would otherwise apply to the reporting entity.

As at Feb 2015, the jurisdictions that ASIC considers to have implemented reporting obligations that are substantially equivalent to the derivative transaction rules (reporting) are:

  • Canada;
  • the European Union;
  • Hong Kong;
  • Japan;
  • Singapore; and
  • the United States.

On 25 June 2015, ASIC made a determination prescribing several overseas trade repositories. These are:

  • DTCC Data Repository (U.S.) LLC
  • Derivatives Repository Ltd
  • DTCC Data Repository (Japan) KK
  • DTCC Data Repository (Singapore) Pte Ltd
  • UnaVista Limited, and
  • the Monetary Authority appointed under section 5A of the Exchange Fund Ordinance of Hong Kong.

What is a trade repository

A Trade Repository is an entity that centrally collects and maintains the records of over-the-counter (OTC) derivatives. These electronic platforms, acting as authoritative registries of key information regarding open OTC derivatives trades, provide an effective tool for mitigating the inherent opacity of OTC derivatives markets.

What is single-sided reporting?

Single-sided reporting is where only one party is required to report under the ASIC Derivative Transaction Rules (Reporting) (Reporting Rules). Without single-sided reporting relief, the Reporting Rules require both parties to report.

Who does the single-sided reporting relief apply to?

The single-sided reporting relief will apply to:

(a) authorised deposit-taking institutions (ADIs);
(b) Australian financial services licensees (AFSLs);
(c) clearing and settlement facility licensees; and
(d) exempt foreign licensees,

with total gross notional outstanding positions across all OTC derivatives of less than A$5 billion at the end of each of two consecutive calendar quarters.

This is particularly relevant to the “Phase 3B entities” (with less than A$5 billion gross notional outstanding OTC derivative positions as at 30 June 2014), who become subject to the Reporting Rules for the first time on 4 December 2015.

When does the single-sided reporting relief apply?

To obtain the benefit of the relief, the other party to the OTC derivative must be:

(a)        a reporting entity required to report information about the trade under the Reporting Rules and not relieved from that requirement under the single-sided relief;
(b)        a reporting entity who otherwise reports information about the trade under the Reporting Rules; or
(c)        a foreign entity reporting under a ‘substantially equivalent’ foreign regime to an offshore prescribed repository and designates or tags the information reported as reported under the Reporting Rules.

The relief requirements are similar for transaction reporting and position reporting.

This means that no relief is available where the other party does not satisfy the above (eg end customer not a reporting entity).

This also means that, where an OTC derivative transaction is between two parties potentially entitled to the single-sided reporting relief, the parties will need to agree which of them will report the transaction.

 

Does the data identify my individual clients?

With the cost of leads increasing steadily as more brokers enter the market, service offerings standardise and spreads become thinner, and protecting the relationship with the client is paramount for brokers. In cases that the client is an individual, the ASIC reporting rules require a unique ID and the client’s legal name. No phone numbers, emails or addresses are required in the reports.

Are trade volume figures exposed in the data I give to TRAction?

No. Most brokerages have elected to use the “snapshot reporting” provisions of the trade reporting legislation for their transactions. This means that you are effectively only reporting transactions open at the end of the day. If a transaction is opened and closed before the end of day it is not required to be reported. In these circumstances, the data won’t capture the total trade volume of your firm or individual clients.

Could the data reveal the profit or loss of my firm?

No. Again, due to closed transactions not being reported there is no possible way to ascertain the profitability or revenue of a reporting entity.

We take your privacy seriously and are bound by terms and conditions that only allow us to disclose data to a licensed Australian Derivative Trade Repository (ADTR) or where required to do so by law.

What is the definition of “end of day”?

There isn’t one. We suggest you choose an end of day that aligns with the end of day on your servers and your current reporting processes and stick to it (subject to daylight savings which shifts the end of day for many brokers twice a year by one hour).

Can ASIC work out whether my clients are trading profitably?

No. Again, due to closed transactions not being reported there is no possible way to ascertain the profits or losses of your clients.

Can ASIC reconcile our client money on trust with the collateral figures from reported trades?

No. Due to an anomaly in the legislation, brokers with retail clients or clients that are not Reporting Entities don’t have to report how much collateral was posted by the client. Brokers only have to report the collateral that they post for trades, i.e. hedging trades. Again, single-sided relief may apply to your hedging trades meaning the collateral you have posted with your hedging counterparty doesn’t get reported to any trade repository. Similarly it is not possible for ASIC to know from the reported trades whether you have posted client money (under the Corporations Act provisions allowing you to do so) or firm capital with your hedging counterparties.

Will the information I provide to TRAction identify whether we are an STP broker or running a book?

No, as most brokers will benefit from single sided relief, therefore not having to report all or some of their hedging trades (trades done with another reporting entity), there would be no possible way to extract or calculate the ‘risk model’ of the broker from the data provided to TRAction.

Who needs to report under intermediary authorisation or authorised representative arrangements?

A “Reporting Entity” needs to report information about its “Reportable Transactions” under the ASIC Derivative Transaction Rules (Reporting) 2013.nnAssuming that a broker is an Australian entity or foreign subsidiary of Australian entity in respect of a transaction with a customer, the Reporting Entity is the counterparty with the customer.nnThe counterparty will be the issuer of the derivative. This is identified in the relevant Product Disclosure Statement.nnWhere the broker does not have an AFSL and is part of an intermediary authorisation arrangement under s911A(2)(b) of the Corporations Act with an AFS Licensee, and the broker is the issuer of a derivative with a customer under the intermediary authorisation arrangement, the broker is the counterparty to the customer and the Reporting Entity for the derivative.nnWhere the broker is only the authorised representative of an AFS Licensee and the AFS Licensee (including where the AFS Licensee uses a registered business name) is the issuer of a derivative with the customer, the AFS Licensee is the counterparty to the customer and the Reporting Entity for the derivative.

What is a Trade Repository?

A Trade Repository is an entity that centrally collects and maintains the records of over-the-counter (OTC) derivatives. They play a central role in enhancing the transparency of derivative markets and reducing risks to financial stability.

UK and Europe - EMIR

What is EMIR?

The European Market Infrastructure Regulation (EMIR) is EU legislation for the regulation of over-the-counter (OTC) and exchange-traded derivatives. The regulations include requirements for reporting of derivative contracts and implementation of risk management standards. It established common rules for central counterparties and Trade Repositories (TRs). The objective of the legislation is to reduce systemic counterparty and operational risk, and help prevent future financial system collapses.

What is the EMIR Revised RTS?

The level 3 Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) were a revision of the existing applicable standards. They entered into force on 10 February 2017 and have applied since 1 November 2017.

The key changes were:

  • – Addition of swaption and spreadbet instrument classes
  • – Increase in number of fields for Credit Default Swaps and Interest Rate Swaps
  • – ‘Trade with non-EEA counterparty’ with ‘Country of other counterparty’
  • – Additional collateral fields (including both received and posted)
  • – Requirement to report Classification of Financial Instruments (CFI) code

Why the changes?

Since the start of EMIR Reporting, ESMA has been providing guidance via their Q&As and looking to clarify certain aspects of the regime. The revised RTS and ITS allow the incorporation of these years of guidance and clarity directly into the technical standards. It also allows the addition of new fields and values to better reflect market practice as well as the opportunity to better align EMIR standards with the upcoming MiFIR transaction reporting.

What is a Trade Repository?

A Trade Repository (TR) is an entity that centrally collects and maintains the records of OTC and exchange-traded derivatives. TRs play a central role in enhancing the transparency of derivative markets and reducing risks to financial stability. TRs are registered and supervised in the EU by the European Securities and Markets Authority (ESMA) under the European Market Infrastructure Regulation (EMIR).

6 TRs are currently registered with, and recognised by, ESMA:

  • – CME Trade Repository Ltd. (CME TR), based in the UK
  • – DTCC Derivatives Repository Ltd. (DDRL), based in the UK
  • – ICE Trade Vault Europe Ltd. (ICE TVEL), based in the UK
  • – Krajowy Depozyt Papierów Wartosciowych S.A. (KDPW), based in Poland
  • – Regis-TR S.A., based in Luxembourg
  • – Bloomberg Finance L.P./ UnaVista Ltd, based in the UK
  • – NEX Abide Trade Repository AB, based in Sweden

I am based outside of the EEA. Do I need to Report?

No. The EMIR reporting obligation covers most participants involved in a trade other than natural persons and non-EU and non-EEA.

Is there an exemption for Small and Medium-sized Enterprises (SMEs)?

No. Corporate entities are classified as either financial counterparties or non-financial counterparties. Both are obliged to report trades under EMIR.

Does EMIR only apply to OTC derivatives or to Exchange Traded Derivatives as well?

ESMA have confirmed in their Q&A that “The EMIR reporting obligations covers all derivatives.”

As noted in EMIR Article 2(5), ‘‘derivative’ or ‘derivative contract’ means a financial instrument as set out in points (4) to (10) of Section C of Annex I to Directive 2004/39/EC as implemented by Article 38 and 39 of Regulation (EC) No 1287/2006.

Are Spot Forex Transactions reportable?

No, if settled ≤ T+2.

Are Rolling Spot Forex Transactions reportable?

Yes, rolling spot forex transactions are reportable under EMIR.

“Rolling Spot Forex Contract” is defined in the FCA Handbook to mean a future or contract-for-difference in forex / foreign exchange, entered into for speculative purposes.  Both futures contracts and contracts-for-difference are covered by the definition of “derivative” under Article 2(5) of EMIR.   Therefore in the UK, rolling spot forex transactions are subject to reporting under EMIR.

Are spread-bets reportable?

Yes where it is a derivative under Article 2(5) of EMIR. E.g. A spread-bet on a currency pair would be reportable under EMIR. A spread-bet on a sporting event would not.

When do EMIR trade reports have to be submitted? (What is meant by T+1 Reporting?)

The T stands for transaction date, which is the day the transaction takes place. The number 1 denotes how many days after the transaction date the initial report of the transaction must be submitted to a TR. In effect, the report must be submitted no later than midnight on the working day following the event.

Can I delegate Trade Reporting?

Counterparties which are subject to reporting obligations may delegate reporting, however it must be ensured that there is no reporting duplication. When counterparties delegate reporting, they retain the responsibility for the accuracy and timely submission of the reports.

Both counterparties to a trade must report the trade from their perspective unless by prior arrangement, one party reports on behalf of both counterparties.

Either counterparty to the trade may delegate their trade reporting to a third party.

Where one counterparty reports on behalf of another counterparty, or a third party reports a contract on behalf of one or both counterparties, the details reported shall include the full set of details that would have been reported had the contracts been reported by each counterparty separately.

What are Legal entity identifiers?

A Legal Entity Identifier (LEI) is a unique 20-character code that identifies distinct legal entities.

The reporting of derivative transactions to TRs under European Market Infrastructure Regulation (EMIR) requires an LEI where the counterparty is not an individual (i.e. a natural person).

Is it possible to report at position level?

It is possible to use position level reporting as a supplement to trade level reporting. It is not permissible to report only positions.

UK and Europe - MiFID II

Is a 125K ‘matched principal licence’ the same as “matched principal” under MiFID II?

Not necessarily. A broker may hold a “125K” matched principal licence from a regulator. However, it may not meet the more stringent MiFID II definition of ‘matched principal’ in Article 4(38) of MiFID II. The MiFID II definition outlines three characteristics that must all be present for the definition to be met”:

  1. the facilitator is never exposed to market risk throughout the execution of the transaction;
  2. both sides are executed simultaneously; and
  3. the transaction is concluded at a price where the facilitator makes no profit or loss, other than a previously disclosed commission, fee or charge for the transaction.

I’m a CFD/FX broker – do I meet the MiFID II “matched principal” requirements?

Trades conducted by most CFD/ FX brokers would not meet these requirements and therefore not be considered matched principal trades. See our article on this subject for more information

Do I have to report my transactions with liquidity providers?

Yes, if you are not engaging in “matched principal” trading per the MiFID II definition, you will be required to report transactions with liquidity providers as well as transactions with clients.

Under EMIR you may have been relying on your liquidity providers to report your trades. This relief is not available for MiFID II.

Do one or two transaction reports need to be submitted?

Two reports need to be submitted. That is:

  • – One report for the client side; and
  • – one report for the liquidity provider side

are required to be made where you are not engaging in matched principal trading as defined in MiFID II (described in the question above).

Even if you hold a “125K” limited licence and engage in matched principal trading from a regulatory perspective, you may not meet the more stringent MiFID II definition of matched principal trading. In this case, you would be required to submit two transaction reports including a separate report between you as the broker and the liquidity provider.

What information should be populated in execution and investment decision-making fields?

Where a client or other person from outside the investment firm makes a decision about execution by providing instructions to this effect, you should populate field 59 (execution within firm) with “NORE”. Otherwise, you will need to report the natural person identifier or an algorithm code of the person or system respectively making the investment decision.
Field 57 (investment decision within firm) will need to be populated with the natural person identifier or an algorithm code, based on whether the investment decision was made by a natural person or algorithm.

Typically, how would a CFD broker complete trading capacity and execution and investment decision fields?

A firm with a 125K matched principal licence operating on an STP model through which orders are not undertaken simultaneously would be required to submit two transaction reports.  The reports would be populated to show that the broker was dealing on own account and an algorithm was responsible for the execution and the investment decision.  See the following table as an example of how the field population would be undertaken.

Example field population
 
  Data Type LP side trade           Client side trade
Field 29 – Trading Capacity Matched principal trading “MTCH” “MTCH”
Dealing on own account “DEAL” “DEAL”
Other capacity “AOTC” “AOTC”
Field 59 – Execution within firm Natural person Natural person identifier Natural person identifier
Algorithm 50-character alphanumeric code
“MT4Server”
50-character alphanumeric code
“MT4Server”
Execution decision made outside of firm “NORE” “NORE”
Field 57 – Investment decision within firm Natural person Natural person identifier Natural person identifier
Algorithm 50-character alphanumeric code

“MT4Server”

50-character alphanumeric code


“MT4Server”

 

What is Commodity Position Reporting?

With the implementation of MiFID II on 3rd January 2018, limits will apply to the net position a person can hold in commodity derivative contracts. These limits will be set by the National Competent Authorities (“NCAs”) and the position reporting will allow the NCAs to issue liquidation orders when the limits are exceeded. For example, the FCA has published a list of commodity derivative contracts which will attract position limits from the MiFID II implementation date.

What instruments need to be reported?

Cash-settled and physically-settled commodity derivatives listed on European Economic Area (“EEA”) trading venues (a Regulated Market (“RM”), Multilateral Trading Facility (“MTF”) or an Organised Trading Facility (“OTF”)) (“Trading Venue”). These include:

  • Energy derivatives, metal derivatives, agricultural derivatives and other food derivatives;
  • Intangible derivatives e.g. climate derivatives;
  • Flow-based delivery derivatives e.g. electricity and gas derivatives,

as well as OTC derivatives “economically equivalent” to the venue-traded instruments above.

What is meant by “economically equivalent” OTC contracts?

The definition of Economically Equivalent OTC Contracts (“EEOTC”) provided by ESMA is as follows:

“An OTC derivative shall be considered economically equivalent to a commodity derivative traded on a trading venue where it has identical contractual specifications, terms and conditions, excluding different lot size specifications, delivery dates diverging by less than one calendar day and different post trade risk management arrangements”

Commission Delegated Regulation (EU) 2017/591 supplementing Directive 2014/65/EU (MiFID II)

When do the reports need to be submitted?

22:00 Central European Time (CET) T+1 to an NCA, probably earlier if submitted to a venue. Operationally, this most likely means you’ll need to plan to have this done by close of business T+1 CET.

Do I need to submit weekly ‘commitment of trade’ reports?

MiFID II Article 58-1(a) includes the obligation to “make public a weekly report with the aggregate positions held by the different categories of persons for the different commodity derivatives or emission allowances or derivatives thereof traded on their trading venue”. This requirement relates to an “investment firm or a market operator operating a trading venue which trades commodity derivatives or emission allowances or derivatives”. Accordingly, it is a requirement for Trading Venue operators rather than all investment firms and only when certain minimum thresholds have been exceeded.

Who do I need to submit position reports to?

For venue-traded commodity derivatives – the venue is required to report to the NCA.

For EEOTC – report to the NCA of the venue where the corresponding venue-traded derivative is traded (this differs from MiFID transaction reporting where a firm reports to their home state NCA).

Is this in addition to my other MIFID II transaction reporting obligations? Do I report a commodity contract once or twice?

Potentially yes – in-scope venue-traded and economically equivalent OTC commodity contracts will need to be reported when they are executed (Transaction Reporting) and also reported daily as positions under MiFID II.

Can TRAction Fintech assist me with this reporting obligation?

Reporting of commodity position information should be undertaken by your firm or by a third-party specialising in commodity position reporting. TRAction Fintech can assist you in understanding your reporting requirements – today on +44 20 8050 1317.

What is MiFID II?

The Markets in Financial Instruments Directive 2014/65 (“MiFID II”) is European legislation that is set to significantly change the functioning and regulation of financial markets in Europe. MiFID II is the successor to MiFID I and makes changes to the original regime in areas including execution practices, regulatory reporting, conflicts of interest and passporting. Its legal form as a directive necessitates separate implementation in the legislation of each EEA member state.  Learn more on our MiFID II page.

What is MiFIR?

The Markets in Financial Instruments Regulation 600/2014 (MiFIR) is a regulation coming into force in the European Union (“EU”)  on 3 January 2018. It was formulated to support the obligation to uphold integrity of the markets by National Competent Authorities (“NCAs”).

MiFIR includes a reporting obligation, whereby firms which execute transactions in reportable financial instruments need to report complete and accurate details of the transaction (trade) to the NCA as quickly as possible and no later than the next working day.

What is the purpose of MiFIR transaction reporting?

MiFIR transaction reporting enables NCAs to detect and investigate potential instances of market abuse and monitor the fair and orderly functioning of the markets. There is no real change from the purpose of the existing MiFID I transaction reporting; however, MiFIR was formulated after the MiFID review to better meet the requirements of regulators.

These requirements include more harmonised reporting across EEA.  The current process under MIFID I allows some room for interpretation. This can make it difficult for the NCAs to understand reports received from other NCAs and for firms to report to multiple NCAs.

Regulators also need to reflect instruments caught by the Directive on criminal sanctions for market abuse 2014/57/EU (“the Market Abuse Directive”). Under the current MIFID I transaction reporting, firms currently only need to report equity (i.e. stocks) and debt related instruments (i.e. bonds).

Simply put, the regulators need more help to detect market abuse.

What changes have been made to transaction reporting in MiFIR?

MiFIR has introduced a number of significant changes to the transaction reporting regime, including:

  • Increase in the number of financial instruments that must be reported.
  • Number of fields within the transaction report to be increased from 24 to 65.
  • Requirement to provide identity information for natural persons.

Who has an obligation to transaction report? Will non-European firms have to report under MiFIR?

MiFIR & MiFID II apply to investment firms within EEA member states and their branches located outside of the EEA when they engage in a transaction in a reportable instrument. Also, investment firms from outside the EEA will have a reporting obligation when operating from branches or subsidiaries within the EEA. Keep an eye out for our upcoming blog article on the extra-territorial reach of MiFIR.

What is the definition of a transaction?

In the MiFIR RTS 22 (Regulatory Technical Standards), a transaction is broadly defined as:

  • A purchase or sale of a financial instrument
  • Entering into or closing out of a derivative contract in a financial instrument
  • An increase or decrease in the notional amount for a derivative contract that is a financial instrument
  • The simultaneous acquisition and disposal of a financial instrument where there is no change in the ownership of that instrument but post trade publication is required

Are there any exclusions?

MiFIR RTS 22 also includes some exclusions:

  • SFTs (Security Financing Transactions) – unless a member of the European System of Central Banks is a counterparty
  • A contract arising exclusively for clearing or settlement purposes
  • Settlement of mutual obligations between partied where the new obligation is carried forward.
  • Acquisition/disposals that is solely a result of custodial activity
  • Post-trade assignment or novation of a derivative contract
  • Portfolio compressions
  • Creation or redemption of units of a collective investment undertaking.
  • Exercise of a right embedded in a financial instrument or conversion of a convertible.
  • Creation, expiration or redemption of a financial instrument as a result of pre-determined contractual terms.
  • Decrease/Increase in the notional amount of a derivative contract as a result of pre-determined contractual terms
  • A change in composition of an index or a basket that occurs after the execution of a transaction.
  • DRIPs (dividend reinvestment plan) another example would be employee share incentive plans.
  • an acquisition or disposal under an employee share incentive plan, or arising from the administration of an unclaimed asset trust, or of residual fractional share entitlements following corporate events or as part of shareholder reduction programmes (where additional criteria are met)
  • an exchange and tender offer on a bond or other form of securitised debt where the terms and conditions of the offer are pre-determined and published in advance and the investment decision amounts to a choice by the investor to enter into the transaction with no ability to unilaterally vary its terms.

What is the execution of a transaction?

  • Reception and transmission of orders in relation to one or more financial instrument
  • Execution of order on behalf of clients
  • Dealing on own account
  • Making an investment decision in accordance with a discretionary mandate given by a client
  • Transfer of financial instruments to or from accounts.

What is a financial instrument under MiFID II?

‘Financial instrument’s are defined in Section C of Annex I of MiFID II.  It includes, amongst many others, transferable securities, money market instruments, financial contracts-for-difference and derivative contracts relating to securities, currencies, interest rates or yields, emission allowances and commodities.

Which instruments need to be reported?

  • Financial instruments which have been admitted to trading or are traded on an EEA trading venue – Regulated Market (“RM”), a Multilateral Trading Facility (“MTF”) or an Organised Trading Facility (“OTF”). These trading venues are described in more detail in the ‘What are the different types of trading venue?’ FAQ below.
  • Instruments where the underlying is a financial instrument traded on an EEA Trading Venue.
  • Instruments where the underlying is an index or a basket composed of instruments traded on EEA Trading Venue.

What are the different types of trading venue?

  • A “Regulated Market” or “RM” is a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third-party buying and selling interests in financial instruments in accordance with non-discretionary rules
  • A “Multilateral Trading Facility” or “MTF” is a multilateral system operated by an investment firm or a market operator, which brings together multiple third-party buying and selling interests in financial instruments in in accordance with non-discretionary rules
  • An “Organised Trading Facility” or “OTF” means a multilateral system which is not a regulated market or an MTF and in which multiple third-party buying and selling interests in bonds, structured finance products, emission allowances or derivatives are able to interact in the system in a way that results in a contract. Unlike RMs and MTFs, operators of an OTF have some discretion in execution.

What is product identification?

The instrument identification code is the code used to identify the financial instrument. The ISIN code will be the only way of identifying venue traded instruments. Non-venue traded instruments will require an ISIN code for the underlying instrument or an ISIN or index name where the underlying is an index. See our blog article explaining product identifier requirements.

Where should reports be made and what is an NCA?

Under current MiFID I transaction reporting requirements, firms need to report to their host state regulator, the National Competent Authority (NCA). For MiFIR, firms will need to report to their “home state” NCA. E.g. The UK branch of a French investment firm would report to the AMF in France rather than the FCA.

What are the implications for firms outside the EEA?

Non-EEA firms will have a MiFIR reporting obligation when operating from a branch within the EEA. Keep an eye out for our upcoming blog article on the extra-territorial reach of MiFIR.

How should firms report?

Firms must report to the NCA using one of the following methods:

  • Via an Approved Reporting Mechanism (“ARM”)
  • Directly to the NCA
  • Via a trading venue

When should firms report?

Firms need to report details of transactions to the NCA as quickly as possible and no later than the close of the following working day (T+1).

Is it possible to combine EMIR and MIFIR reporting?

While EMIR and MiFIR are separate reporting regimes and have different reporting fields, some aspects of reporting can be combined such as producing a single data extract which covers the requirements of both. Keep an eye out on our upcoming blog article for further details.

How will GDPR (Global Data Protection Regulation) requirements marry with the transparency and reporting requirements of MiFID ii?

It is possible that there will be conflicts between information restrictions from GDPR and reporting requirements under MiFIR. However, as the respective aims of the two regulations are not at odds (data protection for EEA residents and disclosure of derivative information to national regulators), any conflict should be capable of being resolved. The focus now needs to be on the MiFIR regulatory changes which come into effect first and then assessing whether requirements under the GDPR to be implemented on 25 May 2018 will change regulatory reporting.

MiFID II - Matched principal and execution

Is a 125K ‘matched principal licence’ the same as “matched principal” under MiFID II?

Not necessarily. A broker may hold a “125K” matched principal licence from a regulator. However, it may not meet the more stringent MiFID II definition of ‘matched principal’ in Article 4(38) of MiFID II. The MiFID II definition outlines three characteristics that must all be present for the definition to be met”:

  1. the facilitator is never exposed to market risk throughout the execution of the transaction;
  2. both sides are executed simultaneously; and
  3. the transaction is concluded at a price where the facilitator makes no profit or loss, other than a previously disclosed commission, fee or charge for the transaction.

I’m a CFD/FX broker – do I meet the MiFID II “matched principal” requirements?

Trades conducted by most CFD/ FX brokers would not meet these requirements and therefore not be considered matched principal trades. See our article on this subject for more information

Do I have to report my transactions with liquidity providers?

Yes, if you are not engaging in “matched principal” trading per the MiFID II definition, you will be required to report transactions with liquidity providers as well as transactions with clients.

Under EMIR you may have been relying on your liquidity providers to report your trades. This relief is not available for MiFID II.

Do one or two transaction reports need to be submitted?

Two reports need to be submitted. That is:

  • – One report for the client side; and
  • – one report for the liquidity provider side

are required to be made where you are not engaging in matched principal trading as defined in MiFID II (described in the question above).

Even if you hold a “125K” limited licence and engage in matched principal trading from a regulatory perspective, you may not meet the more stringent MiFID II definition of matched principal trading. In this case, you would be required to submit two transaction reports including a separate report between you as the broker and the liquidity provider.

What information should be populated in execution and investment decision-making fields?

Where a client or other person from outside the investment firm makes a decision about execution by providing instructions to this effect, you should populate field 59 (execution within firm) with “NORE”. Otherwise, you will need to report the natural person identifier or an algorithm code of the person or system respectively making the investment decision.
Field 57 (investment decision within firm) will need to be populated with the natural person identifier or an algorithm code, based on whether the investment decision was made by a natural person or algorithm.

Typically, how would a CFD broker complete trading capacity and execution and investment decision fields?

A firm with a 125K matched principal licence operating on an STP model through which orders are not undertaken simultaneously would be required to submit two transaction reports.  The reports would be populated to show that the broker was dealing on own account and an algorithm was responsible for the execution and the investment decision.  See the following table as an example of how the field population would be undertaken.

Example field population
 
  Data Type LP side trade           Client side trade
Field 29 – Trading Capacity Matched principal trading “MTCH” “MTCH”
Dealing on own account “DEAL” “DEAL”
Other capacity “AOTC” “AOTC”
Field 59 – Execution within firm Natural person Natural person identifier Natural person identifier
Algorithm 50-character alphanumeric code
“MT4Server”
50-character alphanumeric code
“MT4Server”
Execution decision made outside of firm “NORE” “NORE”
Field 57 – Investment decision within firm Natural person Natural person identifier Natural person identifier
Algorithm 50-character alphanumeric code

“MT4Server”

50-character alphanumeric code


“MT4Server”

 

MiFID II Commodity Position Reporting

What is Commodity Position Reporting?

With the implementation of MiFID II on 3rd January 2018, limits will apply to the net position a person can hold in commodity derivative contracts. These limits will be set by the National Competent Authorities (“NCAs”) and the position reporting will allow the NCAs to issue liquidation orders when the limits are exceeded. For example, the FCA has published a list of commodity derivative contracts which will attract position limits from the MiFID II implementation date.

What instruments need to be reported?

Cash-settled and physically-settled commodity derivatives listed on European Economic Area (“EEA”) trading venues (a Regulated Market (“RM”), Multilateral Trading Facility (“MTF”) or an Organised Trading Facility (“OTF”)) (“Trading Venue”). These include:

  • Energy derivatives, metal derivatives, agricultural derivatives and other food derivatives;
  • Intangible derivatives e.g. climate derivatives;
  • Flow-based delivery derivatives e.g. electricity and gas derivatives,

as well as OTC derivatives “economically equivalent” to the venue-traded instruments above.

What is meant by “economically equivalent” OTC contracts?

The definition of Economically Equivalent OTC Contracts (“EEOTC”) provided by ESMA is as follows:

“An OTC derivative shall be considered economically equivalent to a commodity derivative traded on a trading venue where it has identical contractual specifications, terms and conditions, excluding different lot size specifications, delivery dates diverging by less than one calendar day and different post trade risk management arrangements”

Commission Delegated Regulation (EU) 2017/591 supplementing Directive 2014/65/EU (MiFID II)

When do the reports need to be submitted?

22:00 Central European Time (CET) T+1 to an NCA, probably earlier if submitted to a venue. Operationally, this most likely means you’ll need to plan to have this done by close of business T+1 CET.

Do I need to submit weekly ‘commitment of trade’ reports?

MiFID II Article 58-1(a) includes the obligation to “make public a weekly report with the aggregate positions held by the different categories of persons for the different commodity derivatives or emission allowances or derivatives thereof traded on their trading venue”. This requirement relates to an “investment firm or a market operator operating a trading venue which trades commodity derivatives or emission allowances or derivatives”. Accordingly, it is a requirement for Trading Venue operators rather than all investment firms and only when certain minimum thresholds have been exceeded.

Who do I need to submit position reports to?

For venue-traded commodity derivatives – the venue is required to report to the NCA.

For EEOTC – report to the NCA of the venue where the corresponding venue-traded derivative is traded (this differs from MiFID transaction reporting where a firm reports to their home state NCA).

Is this in addition to my other MIFID II transaction reporting obligations? Do I report a commodity contract once or twice?

Potentially yes – in-scope venue-traded and economically equivalent OTC commodity contracts will need to be reported when they are executed (Transaction Reporting) and also reported daily as positions under MiFID II.

Can TRAction Fintech assist me with this reporting obligation?

Reporting of commodity position information should be undertaken by your firm or by a third-party specialising in commodity position reporting. TRAction Fintech can assist you in understanding your reporting requirements – today on +44 20 8050 1317.