In its September Market Watch 65, the Financial Conduct Authority (FCA) continued its trend of focusing on transaction reporting under the second Markets in Financial Instruments Directive (MiFID II). The data quality issues covered expanded other transaction reporting related items the UK regulator wrote about in Market Watch 59 and 62.
The Market Watch publications help answer the question of ‘What regulators look for in the data?’ and are thus key areas for firms to focus on when reviewing its report submission data quality. Within Market Watch 65, the FCA covered these five topics of MiFID II.
Unreported transactions
The FCA pointed out that a number of firms are incorrectly defining trades within scope. Specifically mentioned were over-the-counter (OTC) traded products or on non-EU venues that were based on an underlying index or basket that had a component trading on an EU venue, potential examples include contract for differences (CFDs) or futures on US indexes where index components are listed in the EU and found on is the European Securities and Markets Authority’s Financial Instruments Reference Database System list.The FCA also noted that a number of firms didn’t have the correct infrastructure to report on a T+1 level with submissions being late. The FCA also alluded to the exit of the CME Group European Trade Repository by stating: “Where a data reporting services provider has indicated that it will stop providing a data reporting service, affected firms should make necessary arrangements to continue meeting their transaction reporting obligations.”
Overall, the FCA reminded firms that in cases where trades aren’t being submitted in time or reports are missing, the regulator is to be notified using the errors and omissions notification form. The FCA also alluded to potential late the exit of the CME Group.
Underlying instrument
The Market Watch aimed to clarify Field 47, Underlying Instrument Codes. It explained the instrument code should be of that which a derivative is based on.
As an example they used CFDs on equity options, stating that the underlying should be the Option contract and not the International Securities Identification Number of the stock that the option is based on.
Trading venue transaction identification codes
At Cappitech, we’ve encountered a number of questions regarding reporting of trading venue transaction identification codes (TVTIC), Field 3. Confusion related to the field were raised by the FCA as it noted several issues they have seen with reports. Ultimately, trading venues are responsible for sharing TVTICs with investment firms who then need to report them on their Markets in Financial Instruments Regulation (MiFIR) submissions.
The FCA stated that it has seen cases where TVTIC is left blank when it should be reported. The authority also advised investment firms to review processes in place for reporting TVTIC as well as for trading venues to review how they share the codes.
Systems and controls
The Market Watch concluded with a reminder that firms should have in place systems to review their reports for accuracy. It mentioned that even though reports pass the FCA’s validations, they aren’t covering all errors. In addition, it stated the requirement for firms to reconcile submissions against their front-office data.
