The determination on the "beneficiary" of the contract under the rules of the REMIT reporting scheme is strictly involved with the way, in which the Field No 10 of the REMIT reporting format (regarding the trading capacity of the market participant or counterparty) is populated.

 

 

ACER's clarification on Data Field No (8) of the REMIT reporting format

 

This field indicates the ID of the beneficiary of the transaction in the case that the trade is executed by a third party on behalf of a market participant. If the beneficiary of the contract is the market participant entering into the transaction, this field is to be left blank. If the beneficiary of the contract is not counterparty to this contract, e.g. if the market participant is acting on behalf of another market participant, the reporting counterparty has to identify the beneficiary by a unique code.

 

For example, if party B is trading on behalf of party C, then party C is the beneficiary and party B is acting on behalf of C. However, by entering into a transaction on wholesale energy products, party B is a market participant unless it is only an agent in which case it would not appear in the report. In this case, the ID of C should be reported in field 1 and this field shall be left blank.

 

If the beneficiary ID is available to the organised market places or to one of the two counterparties to the contract in the case of bilateral contracts traded off-organised markets, the beneficiary ID must be reported. This can also be reported as lifecycle event after the trade takes place.

 

If the information on the beneficiary of the transaction is not available to the organised market place, this field shall be left blank. For example, the organised market place may only know the market participant (or the executing broker in case of exchange) that executed the transaction. Also when the trade is submitted for clearing, this information may be lost because the clearing house only executes transactions against its clearing members, and the market participant may (in the case of self‐clearing members) or may not be the ultimate beneficiary.

 

Some of the reported trades executed at organised market places will look like: A sells to B with beneficiary C. The Agency will in these cases receive two reported trades: A sells to B, B sells to C.

 

However, the trade may be even more complicated and it may involve more parties. For example, if a bilateral trade takes place off-market between A and B, there may be other trades between B and C and D to represent how they split the value of the A and B trade.

 

Bilateral and non-cleared transactions executed off-market may be of the form A sells to B with beneficiary C. In these cases, the Agency will receive one reported trade: A sells to B with C identified in field 8 as Beneficiary.

 

With regard to orders to trade placed by executing brokers at the organised market place, the Beneficiary ID of the broker's client shall also be reported in this field if available to the organised market place. Alternatively, if the order report is reported through a third party on behalf of the executing broker, this should be made available to the reporting party by the executing broker along with trading ID (field 3) and reported to the Agency by the third party reporting on behalf of the broker.

 

There may be many situations where the beneficiary may or may not be known and there are many possible scenarios. Market participants and reporting parties should bear in mind that it is their responsibility to contact the Agency to discuss any of their scenarios that are not represented in this manual.

 

 

If the beneficiary of the contract is the other person than the market participant entering into the transaction, the Field No 8 (data on the beneficiary ID) needs also to be filled in.

 

For details see the Agency for the Cooperation of Energy Regulators (ACER) clarifications (laid down in the Trade Reporting User Manual (TRUM) in the boxes below.

 

Tke key explanation appears to be as follows:

"[f]or example, if party B is trading on behalf of party C, then party C is the beneficiary and party B is acting on behalf of C. However, by entering into a transaction on wholesale energy products, party B is a market participant unless it is only an agent in which case it would not appear in the report. In this case, the ID of C should be reported in field 1 and this field shall be left blank."

  

The above point should be read against the background of the ACER's acknowledgment that investment firm enters into a transaction as principal or agent (depending on their business model):

a. acting on their own account and on their own behalf (pure principal transaction – i.e. on the decision of the firm);

b. acting on their own account and on behalf of a client – i.e. on the order of other market participant; and/or

c. acting for the account and on behalf of a market participant (pure agency transaction).

 

There may, however, be an ambiguity as regards point b above under circumstances where the maker participant fills an order of other market participant. From the two interpretations of the above order relationship:

- the first - "acting on their own account and on behalf of a client", and

- the second - "acting on their own behalf and on account of a client",

ACER evidently supported the former.

 

The problem when precisely the party acts "on account of" and "on behalf of" another counterparty will have to be determined by the competent authorities as it has somewhat broader character and is involved with divergent legal terminology conventions.

 

In the financial sector the European Securities and Market Authority (ESMA) in its Consultation Paper, MiFID II/MiFIR of 19 December 2014 (ESMA/2014/1570 (p. 576) noticed, market participants sought more clarity on the precise understandings of these terms. 

 

As regards trading capacity ESMA for MiFID II reporting purposes refers to the notions of principal and agency capacity to be reported in transaction reports in the following way:

i. principal capacity: dealing on own account either on own behalf or on behalf of a client.

ii. agency capacity: dealing on the account and on behalf of a client.

It follows, as opposite to the above ACER clarification, ESMA defines the principal capacity referring inherently to "dealing on own account", while actions may be done equally either on behalf of a client or on own behalf of a counterparty.

As regards the beneficiary designation, ESMA, moreover, explained that: "the concept of 'beneficiary' applies to the person that acquires or disposes of the legal title to the financial instrument, i.e. the investment firm is not expected to seek to obtain information beyond the legal identity of its clients in such instances as trusts. Usually the decision maker will be the same as the person that acquires or disposes of the legal title to the financial instrument" (ESMA's Consultation Paper, MiFID II/MiFIR of 19 December 2014 (ESMA/2014/1570) p. 581).

 

Unfortunately, beyond that ESMA did not addressed in the above Consultation Paper market expectations for precise directions as to the uniform use of legal formulas of acting "on account of" and "on behalf of" another counterparty.

 

There are no reasonable grounds for divergent meaning and interpretation of the formula where the party acts "on account of" and "on behalf of" another counterparty for REMIT reporting purposes on the one side and for MiFID reporting framework on the other.

Hence, the uniform interpretation of the above terms between ACER and ESMA would be of great importance and would help in the correct application of both reporting schedules.

 

However, also in the Final Report Draft Regulatory and Implementing Technical Standards MiFID II/MiFIR, 28 September 2015 (ESMA/2015/1464) ESMA has not been explicit on the above issues and referred in that regard to future ESMA Guidelines (p. 370):

 

"Following the feedback to the CP the trading capacity field, which shall be populated independently from the identification of the Buyer and the Seller, only refers to the following Level 1 definitions in MiFID II: 'dealing on own account' and 'matched principal trading'. Where none of the two definitions applies, the transaction falls under a third residual category.

 

... As there is no mentioning of "acting on behalf" in the above-mentioned Level 1 definitions, the description of the trading capacity field addresses the industry's concerns of an unclear distinction between the different capacities.

 

...Further instructions on how to use the trading capacities will be given in future ESMA Guidelines."

 

In turn, the European Banking Authority (EBA) in the Report on Investment Firms, Response to the Commission's Call for Advice of December 2014, EBA/Op/2015/20 (p. 19) argues that "order execution on behalf of clients may be assumed in those cases where the investment firm acts on behalf of the client but places the order on the market in its own name (emphasis added). Being the only contractual partner of its client, the firm has an obligation against the client to deliver the financial instruments purchased on their behalf. Whereas this situation leaves the firm without any market risk, since the parties agree that the client would bear the economic risk of the transaction, the firm may remain in principle exposed to credit risk towards both the market counterparts and its client, leading to concerns about whether such a service would fall under the execution of orders (MiFID A2) or would be seen as a market 'risk free' form of principal trading."

 

 

ACER's clarification on Data Field No 10 of the REMIT reporting format

 

This field identifies the trading capacity of the market participant or counterparty in field 1. Unless the market participant is acting on behalf of a third party as an agent, this field shall be populated with "P" for Principal.

 

If the market participant is acting on behalf of a third party as an agent and the beneficiary identification is known and reported in field 8, this field may be populated with "A" for Agent.

 

The Agency understands that the terms Principal and Agency is a term commonly used in the financial markets and it depends upon whether an investment firm enters into a transaction as principal or agent (depending on their business model). The Agency expects that market participants may enter into transactions:

 

a. acting on their own account and on their own behalf (pure principal transaction – i.e. on the decision of the firm);

 

b. acting on their own account and on behalf of a client – i.e. on the order of other market participant; and/or

 

c. acting for the account and on behalf of a market participant (pure agency transaction).

 

Market participants should bear in mind that the meaning of entering into transaction in EMIR is different that the meaning of entering into transaction in REMIT, where the latter refers to entering into transaction in "wholesale energy markets" and not to be counterparty to a contract, as CCPs or clearing members do.

 

 


Fourth Open Letter on REMIT data quality, Ref. Ares(2020)5767318, 22/10/2020

Beneficiary ID and Trading capacity of the market participant reporting (hereinafter Trading capacity)

Reference: TRUM - Table 1 Data Field No (8) and No (10)

Description: ACER continues to observe different reporting issues with respect to the reporting fields Beneficiary ID and Trading capacity. Three common issues are (i) populating the field Trading capacity with ‘P’ for Principal and at the same time populating the field Beneficiary ID, (ii) populating the field Beneficiary ID with the code of the MP executing the transaction, and (iii) not reporting Beneficiary ID when the field Trading capacity is populated with ‘A’ for Agent.
Please note that the field Beneficiary ID should only be populated when the MP is acting on behalf of a known third MP. In that case, the field Trading capacity should be populated with ‘A’ for Agent. In all other cases, the field Beneficiary ID is to be left empty and the field Trading capacity should be populated with ‘P’ for Principal.
Action type ‘M’ (modify) should be used in case the original trade report does not have the Beneficiary ID populated but has Data field No (10) Trading capacity of the market participant or counterparty populated with ‘A’ for Agent. In this specific case, the record with Action type ‘M’ must have the same timestamp as the last successfully reported record, given that providing missing information is not regarded as a new business event.

 

Inevitably, for the proper understanding of the "beneficiary" construct the scope of legal definitions of:

 

execution of orders on behalf of clients,

 

dealing on own account,

 

will play a role.