|MiFID II transaction reporting|
The extent and significance of changes MiFID II caused in the financial reporting can be broadly estimated considering the following two passages:
"Importantly, submission of transaction reports is not a new requirement introduced under MiFIR, but a revision of current applicable rules. Amendments and changes introduced through MiFIR, pursue two important goals: 1) expanding the set of information available on a given transaction and 2) full harmonisation of the content and format of the reports collected across the EU. The magnitude of the change between MiFID I and MiFID II should not be underestimated: in most instances, a newly built system (not just an adaptation or a tweak of previous systems) will be required" (ESMA, 2 October 2015 (ESMA/2015/1514), p. 4),
"MiFID II significantly extends the scope of transaction reporting to regulators. It exempts only transactions where the instrument is purely traded OTC and where they are neither dependent on, nor may influence, the value of a financial instrument admitted to trading on a trading venue. There is also a large increase in the number of data fields for each report" (Financial Conduct Authority, Markets in Financial Instruments Directive II Implementation – Consultation Paper I (CP15/43), December 2015, CP15/43, p. 59),
"The new Transaction reporting regime will be standardised throughout the EU, establishing uniform requirements. The Transaction Reporting and Reference data regime, under MiFIR, sets out a number of reporting requirements in relation to the disclosure of transaction data and reference data on financial instruments falling within the scope of MiFID II to the competent authority. The increase in financial instruments scope and data fields to be reported will extend to more trading venues and more firms. The new MiFIR reporting requirements will replace national regimes in existence under current MiFID that will result in all stakeholders (competent authorities, trading venues, investment firms) having to upgrade or replace their system infrastructure" (ESMA's Consultation Paper, MiFID II/MiFIR of 19 December 2014 (ESMA/2014/1570 p. 557).
The few citations attached figure out the scale of the current reform of the transaction reporting system under the new MiFID II/MiFIR legal framework.
The foundation for the new system has been made in Article 26(1) of MiFIR, which states investment firms which execute transactions in financial instruments must report complete and accurate details of such transactions (note that the corresponding information on orders does not have to be reported, but Article 25 of MiFIR requires both investment firms and operators of a trading venue to keep records of orders available upon request from competent authorities for five years).
The rule on Article 26(1) MiFIR requires that where two investment firms trade with each other, each must make its own transaction report that reflects the transaction from its own perspective.
ESMA underlines, the content for the following fields (describing the common objective elements of the transaction concluded between the two investment firms) must match in the respective equivalent reports of each of the two investment firms: venue, trading date, time, quantity, quantity currency, price, price currency, up-front payment, up-front payment currency, and instrument details, where relevant (Consultation Paper Guidelines on transaction reporting, reference data, order record keeping & clock synchronisation 23 December 2015 (ESMA/2015/1909), p. 12).
An investment firm's transaction reports should include not only the information about the market side of the transaction but also information about any associated allocation to the client, where relevant.
ESMA's Guidelines Transaction reporting, order record keeping and clock synchronisation under MiFID II ESMA/2016/1452 (p. 14, 15) underline that the MiFID II reporting requirements are not intended to capture the investment firm’s or the investment firm’s client’s actual position.
What is of interest is the change in position resulting from reportable transactions.
Transaction reporting responsibility
Reports under MiFID II can theoretically be made to the financial authority through three alternative means:
1) by the investment firm itself,
2) an ARM (Approved Reporting Mechanism)acting on behalf of investment firm,
3) by the trading venue through whose system the transaction was completed (Article 26(7) of MiFIR).
Responsibility involved with the said three potential options for transaction reporting has been allocated by MiFID II as follows:
1) investment firms bears responsibility for the completeness, accuracy and timely submission of the reports which are submitted to the competent authority,
2) by way of derogation from the above rule, where an investment firm reports details of those transactions through an ARM, which is acting on its behalf or a trading venue, the investment firm will not be responsible for failures in the completeness, accuracy or timely submission of the reports which are attributable to the ARM or trading venue.
In those cases the ARM or trading venue will be responsible for those failure.
Investment firms must nevertheless take reasonable steps to verify the completeness, accuracy and timeliness of the transaction reports which were submitted on their behalf.
Investment firms are required "to have arrangements in place to ensure that their transaction reports, when viewed collectively, reflect all changes in their position and in the position of their clients in the financial instruments concerned at the time transactions in the financial instruments are executed" (Article 15(5) of Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities).
The above ESMA's Consultation Paper of 23 December 2015 provides interesting comments (p. 32, 33) on where to send transaction reports.
Article 26(1) of MiFIR is referred to in the first place. This provision stipulates investment firms report transactions to "the competent authority".
Accordingly, the general principle for the reporting of transactions under MiFIR Article 26, is that investment firms will have to send all their transaction reports to their home competent authority.
ESMA underlines this is independent of whether the transaction was executed by the head office of the investment firm or by one of its local or foreign branches, including foreign branches located outside the EEA, or by a combination of the head office and its branches (the said ESMA's statement on the status of non-EEA branches, however, is absent in the ESMA's Guidelines Transaction reporting, order record keeping and clock synchronisation under MiFID II, 10 October 2016, ESMA/2016/1452 and Final Report Guidelines on transaction reporting, order record keeping and clock synchronisation under MiFID II, 10 October 2016, ESMA/2016/1451).
Investment firms will have to send all their transaction reports to their home competent authority also independent of whether the report is sent on behalf of the firm by an ARM or trading venue.
All transaction reports for one investment firm go to one competent authority.
This competent authority will be:
- in case the investment firm is reporting transactions itself, it will send the transaction to its Home competent authority;
- in case one of the branches of the investment firm reports part or all of the transactions of the investment firm, it will have to report the transactions to the home competent authority of the investment firm and not to the host competent authority of the branch;
- iIn case an investment firm delegates its reporting to a trading venue or an ARM, it means that this trading venue or this ARM will have to report to the Home competent authority of the investment firm on whose behalf it reports and not to the competent authority of the trading venue or ARM submitting the transaction report.
ESMA enumerates also three exceptions that are not captured by the rules mentioned above. These are:
- Exception 1: In case a branch of a non EEA firm has the obligation to report its transactions. In this case the Home competent authority is an authority located outside of the EEA and thus outside the scope of MiFID II / MiFIR. However the branch has a reporting obligation to report its transactions.
(i) in case the non EEA firm has only one branch within the EEA, it will report to the host competent authority of that branch.
(i) in case the non EEA firm has branches in multiple jurisdictions, it will choose one of the host competent authorities of its branches and report all transactions to that competent authority.
- Exception 2: Trading venues reporting transactions executed on their platform by members that are not investment firms.
Also in this case, pursuant to the Draft Regulatory Technical Standards, there is no home competent authority for the investment firm, as there is no investment firm involved. In this case the trading venue will have to report the transaction to its own home competent authority.
-Exception 3: Draft Regulatory Technical Standards give the competent authority from the home member state and the competent authority from the host member state together the possibility to deviate from the general rule. Investment firms are advised to contact their home competent authority to ask for which member states such a deviation exists and under what conditions transactions need to be sent to the home competent authority and under which conditions they need to be sent to the host competent authority.
The issue of reporting transactions executed by branches has finally been stipulated in Article 14 of the Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities - see box.
Moreover, in the Questions and Answers on MiFIR data reporting, ESMA70-1861941480-56 (Question 12 updated on 14 December 2017) ESMA explained that transactions executed through non-EU branches of EU investment firms are subject to transaction reporting under Article 26 of MiFIR since a branch has no legal personality and is part of the investment firm according to Article 4(1)(30) of MIFID II.
This requirement applies to transactions executed in financial instruments specified in Article 26(2) of MiFIR.
The transaction reports should be sent to the competent authority of the home Member State of the investment firm following Article 14 of the RTS 22 and the branch should be identified with the LEI of its head office even if it may be considered eligible for an LEI in some cases.
Timing of reporting
According to MiFIR 26(1) of Regulation (EU) No 600/2014, investment firms which execute transactions in financial instruments shall report complete and accurate details of such transactions to the competent authority as quickly as possible and no later than the close of the following working day.
ESMA's Consultation Paper of 23 December 2015 refers to MiFID reporting deadlines by underlining that transactions' reports must reach the home competent authority of investment firms (or, in the case of trading venues reporting on behalf of members that are not investment firms, the home competent authority of the trading venue) no later than 23:59:59 of the home competent authority local time of the working day following the day of the transaction.
This is for transactions executed on day T, transactions must be reported no later than 23:59:59 of day T+1.
ESMA, moreover, makes clear that Investment firms are allowed to report details of their transactions executed on day T also on the same day (i.e. on day T).
This is regardless of whether the reports are made directly by investment firms or by an ARM acting on their behalf or by the trading venue through whose system the transactions were completed.
Workdays are all weekdays except for Saturdays and Sundays and except for all official national holidays within the member state of the national competent authority to whom the transaction report is submitted.
MiFID/EMIR/REMIT reporting interrelations
Trade-matching or reporting systems, including trade repositories registered or recognised in accordance with EMIR, may be approved by the competent authority as an ARM in order to transmit transaction reports to the competent authority.
In cases where transactions have been reported in accordance with EMIR to a trade repository, which is approved as an ARM, and where these reports contain the details required by MiFID 2 and are transmitted to the competent authority by the trade repository within the time limit set in MiFID 2, the obligation to report data laid down on the investment firm is considered to have been complied with.
Trade repository with an ARM functionality is for instance UnaVista Limited (entity operates as a European Approved Reporting Mechanism (ARM) under the MiFID regime for all asset classes and markets and by becoming a trade repository also for all asset classes across all venues, customers will only need to connect once to meet both their EMIR and MiFID reporting requirements).
Such a solution really eases the regulatory reporting burden, so it can be expected will soon become more common.
Where there are errors or omissions in the transaction reports, the ARM, investment firm or trading venue reporting the transaction are required to correct the information and submit a corrected report to the competent authority.
For MiFID II, as well as for EMIR reporting, Legal Entitiy Identifiers (LEIs) are indispensable.
Meaning of transaction
The key element for the new MiFID II reporting scheme is the transaction, which has been for this purpose specifically defined.
Constituent elements of a transaction are seen on a broad principle basis with a specific limited set of exclusions.
The meaning of a transaction for MiFID II reporting purposes is therefore broad and not exhaustively defined.
It concentrates on acts and events potentially giving rise to market abuse concerns.
ESMA' Guidelines stress that the authorities are interested in the changes in the ownership of financial instruments for market abuse purposes.
Movements that do not result in a change of ownership are not reportable.
One example is the movement from a client account operated under a discretionary mandate to one operated on an execution-only basis.
This only applies to the situation of an fnvestment firm hitting its own order on the order book of a trading venue.
The regulations underline the methods and arrangements, by which transaction reports are generated and submitted by trading venues and investment firms must include mechanisms to avoid reporting of any transaction where there is no obligation to report because there is no "transaction" within the defined meaning (Article 15(1)(g) of Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities).
That said, reportable transactions under MiFID II system include purchases and sales of reportable instruments as well as other cases of acquisition or disposal of reportable instruments.
Changes to notional amount have been placed an an equal footing with classic purchases and sales as they are similar in nature and may give rise to market abuse concerns.
In order for competent authorities to distinguish those changes from other purchases or sales, those changes should be specifically reported in transaction reports.
Acts or events, which do not need to be reported to competent authorities for market surveillance purposes, have been specifically excluded from the meaning of a transaction, and, consequently, filtered out of the scope of MiFID II transaction reporting.
As an example, when drafting the respective rules ESMA has decided to exclude all activity connected with the exercise of financial instruments.
ESMA has recognised that while it would be desirable for the competent authorities to receive information on exercises where the investor is making a positive decision to carry out the exercise, there are significant difficulties associated with reporting the exercise and the resultant transaction in a meaningful way.
Hence, it was considered that the additional complexity required does not justify the benefit (ESMA's Final Report, Draft Regulatory and Implementing Technical Standards MiFID II/MiFIR, 28 September 2015 (ESMA/2015/1464), p. 363).
The consequence of the above assumptions is Article 2 of the regulatory technical standard (that deals with the meaning of the "transaction") is based on the concept of "acquisition" or "disposal" of a financial instrument and is structured in a way to include:
- a non-definite list of instances which are considered to be transactions for the purpose of transaction reporting under Article 26 of MiFIR (Article 2(1) -(4) of Commission Delegated Regulation (EU) 2017/590) and
- a definite list of instances that are not considered to be transactions for the purpose of Article 26 of MiFIR and, thus, should not be subject to reporting requirement (Article 2(5) of Commission Delegated Regulation (EU) 2017/590).
Article 2(5)(h) of Commission Delegated Regulation (EU) 2017/590 stipulates that transaction for the purposes of MiFID transaction reporting does not include “the exercise of a right embedded in a financial instrument”.
Obviously, this general rule has its more detailed manifestations, the example is the ESMA’s answer to the Question 9(e) (Questions and Answers on MiFIR data reporting, ESMA70-1861941480-56, Transaction reporting, updated on 14 November 2017), according to which lapsed rights are not reportable (they are considered to be within the exclusion in the said Article 2(5)(h) of Commission Delegated Regulation (EU) 2017/590).
When drafting the pertinent provisions ESMA agreed with arguments that there is no risk of market abuse for pure custodial activity i.e. transfers between a custodian and the custodian's client since there is a change in legal ownership but no change in beneficial ownership.
Therefore this type of activity should not be reportable.
In turn, for transactions where a custodian is acting for a client with a change of beneficial ownership of the client competent authorities are interested in the identity of the investor rather than the custodian.
Pre-determined contractual terms and mandatory events
ESMA clarified that the exclusion for pre-determined contractual terms or a result of mandatory events which are beyond the control of the investor is not intended to be limited to corporate events such as mergers, takeovers bankruptcy but also applies to other events meeting this criteria such as issue of scrip dividends, automatic expiries on a contractual termination date, etc.
It has also been made clear that this exclusion does not exclude initial public offerings or secondary offerings, placings or debt issuance which are therefore reportable provided that the activity takes placed in a reportable financial instrument.
Intra-group activity and transactions between branches
ESMA's Consultation Paper, MiFID II/MiFIR of 19 December 2014, ESMA/2014/1570 (p. 563) has explained regulator's intentions with respect to intra-group activities' financial reporting.
ESMA noted, there were several comments from the stakeholders, ranging from suggestions to exclude all such activity from MiFID II reporting to a suggestion that such activity for the purpose of transferring risk should be excluded.
ESMA's view on the issue was that where there is a change of position of investment firms within the same group this activity should be reported since otherwise the financial competent authorities "will not be able to link transactions in a chain and there are also risks that changes in positions will not be reported accurately".
Another point rising doubts were transactions between two branches of the same investment firm.
In that regard ESMA shared the industry's views that transactions between branches of the same investment firm or between a branch and the head office of the investment firm should be excluded from the MiFID II reporting so long as they are purely internal movements.
Subsequently, after reconsidering the stakeholders' comments, ESMA specified in the said Final Report of 28 September 2015 that:
- transactions between different firms with different LEIs within the same group are reportable,
- transactions between branches within the same legal entity,
- transactions between branches within the same legal entity are not reportable,
- any transfers between clients are reportable under the general definition of transaction,
- purely internal transfers within a firm for operational reasons where there is no change of position for the firm or client are not included in the definition of transaction and are not reportable.
Acquisition or disposal solely a result of a transfer of collateral
Transactions necessary for the purpose of collateral transfer became the subject of the separate ESMA's document (Final Report Amendment of ESMA draft regulatory technical standards on reporting obligations under Article 26 of MiFIR, 04 May 2016, ESMA/2016/653).
In the said Report of 4 May 2016 Article 2(5) of the respective draft regulatory technical standard on reporting obligations under Article 26 MiFIR has been supplemented with additional point:
"(o) an acquisition or disposal that is solely a result of a transfer of collateral".
ESMA explained that in its opinion collateral transfers should not fall within the meaning of transaction and should not be reported.
Definition of execution
For the purposes of clarifying which investment firms are required to report transactions under MiFID II, regulatory technical standards define, in the form of an exhaustive list, the activities or services which lead to a transaction.
The services or activities are the ones mentioned in Annex 1, Section A, points 1, 2, 3 of MiFID II, supplemented by:
By way of exception, investment firms, which are considered to have transmitted orders which result in transactions, are not considered to have executed those transactions.
Situations are also to be noted, where the investment firms will not have a reporting obligation under MiFID II, although engaged in arranging transaction, since those no execution in the MiFID II meaning.
This may arise where investment firm is matching two orders from clients without interposing itself, for example, where investment firm Z brings together firms X and Y, but is not a party to the transaction (firms X and Y agree between themselves on the details of the transaction).
Assuming that firms X and Y are acting on own account, and firm X knows at the point of execution that Y is its counterparty (and vice versa), firm Z will not have any reporting obligation under MiFID, instead firms X and Y will have to report.
Another example is the case where the broker's role is restricted to the introduction of a client to another investment firm and receiving a commission for this introduction.
ESMA in this regard refers to the following example: "Client A wants to buy a given instrument. His broker, firm X, does not deal in such instruments and introduces client A to firm Y. Firm Y purchases the financial instruments for client A on trading venue M. Firm Y knows at the point of execution that client A is its client and client A knows that it has the relationship with firm Y for this transaction. Firm X has no role in the execution and just receives a commission from firm Y for the introduction. Since firm X has not executed, the firm does not transaction report" (see: ESMA's Final Report of 28 September 2015, p. 82, 83).
Transmission of an order
In order to avoid non-reporting or double reporting by investment firms who transmit orders to each other, they should agree whether the firm receiving the transmitted order will report all the details in its transaction report of the resulting transaction or transmit the order onwards to another investment firm.
In the absence of an agreement and to avoid non-reporting or double reporting, the transmitting firm should submit its own transaction report which includes all the details of the resulting transaction and the receiving firm should submit a transaction report which does not include the transmitted details.
While this may appear restrictive, ESMA underlined that complying with the conditions for transmission is only one choice that is available for transmitting firms. As an alternative a transmitting firm can report itself.
Details relating to the order to be transmitted between firms have been prescribed in the regulatory technical standards (Article 4 of the Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities) to ensure that the relevant, accurate and complete information ultimately reaches competent authorities.
Specific conditions and the timing need to be agreed between the transmitting firm and the receiving firm.
However, the form this must take and appropriate timings are not stipulated in the respective provisions and, in effect, are the domain for the commercial arrangement between the transmitting and receiving firm.
The conditions for transmission need to be agreed with each receiving firm that a transmitting firm is seeking to rely on to report but this is not on a per client basis.
The receiving firm will always send its reports under its own name to meet its own reporting obligations but where the transmission conditions have been satisfied, the receiving firm will incorporate the information received from the transmitting firm into its own reports.
Reporting of aggregated transactions is required at both the aggregate and allocation level. Therefore if a firm chooses not to meet the conditions for transmission and reports itself it must report the transaction with the receiving firm and the allocation to the clients.
ESMA also provided the following additional clarifications:
- In the absence of agreement between the transmitting firm and receiving firm, an order should be treated by the receiving firm as a direct order.
- A receiving firm cannot be a trading venue.
- The application of transmission to Direct Market Access (DMA) is no different to its general applicability. If a DMA user meets the transmission requirements then it will not have to transaction report and the DMA provider will report the details transmitted by the DMA user.
- Where there is successful transmission the receiving firm shall report the market side and the client side of the transaction. The client side would include the information provided by the transmitting firm.
The above rules are reflected in the required content of the reporting format attached to the regulatory technical standards (Table 2 Details to be reported in transaction reports), Field 57 (Investment decision within firm), and Field 58 (Country of the branch responsible for the person making the investment decision) as follows:
- Field 57 - Code used to identify the person or algorithm within the investment firm who is responsible for the investment decision.
Where the transaction is for a transmitted order that has met the conditions for transmission set out in Article 4, this field shall be populated by the receiving firm within the receiving firm's report using the information received from the transmitting firm,
- Field 58 - Code used to identify the country of the branch of the investment firm for the person responsible for the investment decision, as set out in Article 14.3(b).
Investment firms dealing on own account or on a matched principal trading basis are acting directly themselves and cannot 'transmit orders' in the aforementioned meaning, as any orders they submit to another firm or investment firm are their own orders rather than being transmission of an order received from a client or resulting from a decision to acquire or dispose of a financial instrument for a client under a discretionary mandate.
Therefore where investment firms transmit orders but do not comply with the conditions for transmission stipulated in the said Article 4 of the Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities, ESMA would only expect them to report in an 'any other capacity'.
Annex to the said Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 stipulates the following details to be reported under MiFID II with respect to the transmission of the order:
As the ESMA's Guidelines Transaction reporting, order record keeping and clock synchronisation under MiFID II, 10 October 2016, ESMA/2016/1452 (p. 22, 23) underline, investment firms that:
- receive an order from its client and send it to another firm or fnvestment firm for completion, or
- make a decision to acquire or dispose of a financial instrument in accordance with a discretionary mandate provided to it by its client and place it with another firm or investment firm;
have a choice: either to comply with the transmission conditions set out in Article 4 of the said Regulation (EU) 2017/590 of 28 July 2016 or to report the transaction.
Pursuant to Article 3(2) of the same Regulation, "an investment firm shall not be deemed to have executed a transaction where it has transmitted an order in accordance with Article 4".
The receiving firm should populate the specified information indicated in the table of fields in its own transaction report, should do this as part of its normal reporting and is not required to become an ARM.
In accordance with said Regulation (EU) 2017/590 of 28 July 2016 (Fields 7, 16 and 25), where an investment firm:
- receives an order from its client and sends it to another firm or fnvestment firm for completion, or
- makes a decision to acquire or dispose of a financial instrument in accordance with a discretionary mandate provided to it by its client and places it with another firm or investment firm;
and does not meet the conditions for transmission under the said Article 4, it should report the transaction and populate the Field 25 ('Transmission of order indicator') with 'true'.
The receiving investment firm should report the transmitting investment firm as its buyer/seller.
Since where a client of a transmitting investment firm has reporting responsibilities the client should report the transmitting investment firm as its buyer/seller rather than the receiving investment firm.
Where an investment firm is dealing on a trading venue that is not an Organised Trading Facility (OTF) acting on a matched principal or own account basis, the investment firm is not transmitting since it is not passing an order to an investment firm but is directly executing itself on the trading venue and Field 25 ('Transmission of order indicator') should be populated with 'false'.
Transmission requirements are applied on an "all or none" basis meaning that if a firm that is sending an order does not pass on all the information required to meet the transmission conditions under Article 4 of the said Regulation (EU) 2017/590 of 28 July 2016 then the receiving investment firm should report as though there is no transmission.
Where there is transmission under Article 4 of said Regulation (EU) 2017/590 of 28 July 2016 it does not change the application of Article 14 of the same Regulation so a receiving investment firm should send any reports to its home competent authority.
Transmission does not take place between branches of the same investment firm as they are not separate legal entities.
In contrast, where transmission takes place between different legal entities within a group then the same reporting requirements apply to those entities as if they were unrelated investment firms.
The purpose of Field 25 (Transmission of order indicator) is to indicate that there was a transmission within a chain to another investment firm without meeting the conditions of Article 4 of the said Regulation (EU) 2017/590 of 28 July 2016.
A transmitting investment firm acting in an agency capacity should report 'true' in Field 25 regardless of whether the investment firm tried and failed to transmit or simply did not choose to transmit.
In light of the above, the ESMA's Guidelines Transaction reporting, order record keeping and clock synchronisation under MiFID II, 10 October 2016, ESMA/2016/1452 (p. 23) concludes, the following cases should be considered when populating Field 25:
(i) Where an investment firm is transmitting and meets all the conditions set out in Article 4 it does not report.
Trading capacities reporting
Pursuant to the MiFID II reporting standard (Field 29), there are three different trading capacities that are to be be reported:
- dealing on own account (DEAL),
- matched principal (MTCH),
- and 'any other capacity' (AOTC).
The reported trading capacity needs to be consistent with the rest of the information in the investment firm's transaction report(s).
Dealing on own account (DEAL)
Where an investment firm is dealing on own account it should be reported as either the buyer or seller in the transaction report.
The corresponding seller or buyer will be the counterparty or client or trading venue that the investment firm is dealing with.
ESMA Guidelines of 10 October 2016 underline (p. 15) that the investment firm in the DEAL capacity may be acting purely to action its own proprietary trades or may be acting on own account with a view to filling orders that it has received from a client.
In the latter case, the trading time and date for the client side report may be the same as for the market side report or could be later and the price of the market side and client side report could be the same or could differ.
Matched principal (MTCH)
Article 4(1)(38) of MiFID II defines matched principal trading as a "transaction where the facilitator interposes itself between the buyer and the seller to the transaction in such a way that it is never exposed to market risk throughout the execution of the transaction (...)".
Consequently, the transaction report should show that the executing investment firm does not have a change of position as a result of the transaction.
Where there is only one client a single transaction report should be submitted including both the market side and client side information.
The client(s) should be populated in the buyer/seller field while the venue or counterparty should be populated in the seller/buyer field.
When more than one client is involved, the aggregate client account should be used to link the market side with the allocations to each client and the client side reports should include all applicable fields.
Trading in an 'any other capacity' (AOTC)
'Any other capacity' (AOTC) designation is intended for reporting all other activity that does not come under the definitions of own account trading or matched principal trading.
This includes, in particular, where the activity is taking place on an agency basis.
- Where an investment firm X acting on behalf of a client purchases financial instruments from another firm or investment firm Y, then X should report that it has traded with Y for X's client.
- If X is buying the financial instruments on an own account basis and sells the said financial instruments to a client, then the purchase from investment firm Y and the sale to the client should be reported in two separate own account transaction reports.
- Where an investment firm executes a transaction with another firm or investment firm by aggregating several clients it should report the aggregate (block) trade with the firm or investment firm (market side) as well as the individual allocations to its clients (client side).
- Where an investment firm is trading on a trading venue for a client on an own account basis it should submit two transactions reports: one for the transaction with the trading venue (market side) and the other for the transaction with the client (client side).
- Where an investment firm is acting on a matched principal or 'any other capacity' basis for a single client then it should submit a single transaction report encompassing both the market side and the client side and should include all the fields applicable to the client.
Identification of person or computer algorithm responsible for the investment decision
Article 8(1) and (2) of the Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities requires investment firms to determine the person taking the "primary" responsibility for the investment decision.
Moreover, according to the new rules, the pre-determined criteria will have to be established by the investment firms for the MiFID II transaction reporting purposes, to easily identify such persons within the firm's structure
Alternative model - allowing formal committees being designated in the transaction reports as the bodies taking "primary responsibility" for the investment decision - has not been incorporated into MiFID II reporting rules (see: Committee no longer responsible for the investment decision).
Consequently, Table 2 in the Annex I of the aforementioned Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 mandates the following content to be reported in the Field 57:
"Field 57 Investment decision within firm
Code used to identify the person or algorithm within the investment firm who is responsible for the investment decision.
For natural persons, the identifier specified in Article 6 shall be used
If the investment decision was made by an algorithm, the field shall be populated as set out in Article 8.
Field only applies for investment decision within the firm.
Where the transaction is for a transmitted order that has met the conditions for transmission set out in Article 4, this field shall be populated by the receiving firm within the receiving firm's report using the information received from the transmitting firm."
Identification of person or computer algorithm responsible for the execution of a transaction
Code identifying the person or algorithm within the investment firm who is responsible for the execution of the transaction is required to be reported in the Field 59 - Table 2 in the Annex I of the aforementioned Commission Delegated Regulation (EU) 2017/590 of 28 July 2016.
In the Final Report Guidelines on transaction reporting, order record keeping and clock synchronisation under MiFID II, 10 October 2016, ESMA/2016/1451 (p. 7) ESMA confirmed that, although National Competent Authorities expect reporting firms to provide the same information on relevant transaction details, under the MiFID II reporting framework there is no explicit requirement to reconcile data like in EMIR.
26 September 2018 - Questions and Answers on MiFIR data reporting (ESMA70-1861941480-56) updated
Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the reporting of transactions to competent authorities, OJ L 87, 31.3.2017, p. 449–478 - RTS 22
Commission Delegated Regulation (EU) 2017/580 of 24 June 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the maintenance of relevant data relating to orders in financial instruments, OJ L 87, 31.3.2017, p. 193–211 - RTS 24
Commission Delegated Regulation (EU) 2017/574 of 7 June 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to regulatory technical standards for the level of accuracy of business clocks, OJ L 87, 31.3.2017, p. 148–151
Guidelines Transaction reporting, order record keeping and clock synchronisation under MiFID II, 10 October 2016, ESMA/2016/1452, corrected on 7 August 2017 (updated version corrects some unintended factual mistakes, typos and inconsistencies in the technical part of the Guidelines), the official translations of the Guidelines were published on 2 October 2017
Commission Delegated Regulation (EU) 2017/585 of 14 July 2016 supplementing Regulation (EU) No 600/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the data standards and formats for financial instrument reference data and technical measures in relation to arrangements to be made by the European Securities and Markets Authority and competent authorities, OJ L 87, 31.3.2017, p. 368–381
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