FCA Continues MIFID II Focus with Market Watch 65
Back in April during Cappitech’s webinar titled ‘MiFID II & EMIR Reporting for the Buyside – Do’s and Don’ts’ , Mark Kelly from our Advisory Board explained that to understand what regulators are monitoring for, to look at the feedback they publish. In the UK, this meant focusing on the FCA’s Market Watch publications.
Both prior to MiFID II going live in 2018 and since, a number of Market Watch publications have provided guidance on reporting certain trade scenarios such as accounting for allocations of block trades. The FCA has also highlighted errors they have encountered in transaction reporting submissions they have reviewed. These included mistakes in the price and buyer/seller identification fields.
In last month’s Market Watch 65, the FCA once again used the publication to raise awareness of issues they are seeing for investment firms to take notice of and review internally. Taking a closer look at items related to MIFID II in the Market Watch.
Underlying Components Trade in the EU
One of the confusing aspects of transaction reporting is defining eligibility for products that aren’t traded on an EU venue but have an underlying that does (UTOTV),and puts them under scope. The FCA defines that falling in the category are trades of products where even a single component of an underlying product traded on an EU venue, it causes the trade to be under scope. Examples are derivative trades of CFDs or futures based on US or Asian indexes or ETF baskets that include component stocks listed in the EU.
Preventing late trading
The FCA brought up that many firms lacked infrastructure to submit transaction reports in time. They added that firms affected by closing of their vendor such as with the exit of CME Group’s Europe Trade Regulatory, and requirement of many companies to migrate to new vendors, should have processes in place to prevent late reporting. In the event that firms do have late reports and require backloading or modifications of historical trades the FCA should be notified.
The TVTIC field
The Market Watch also looked to clarify questions about Field 3, Trading Venue Transaction Identification Code (TVTIC). The field is required for trades where an EEA MIC Code is entered in the Venue field. The FCA explained that this identifier code was the responsibility of the venue to distribute to participating trading members. However the regulator was seeing the TVTIC field being left blank in error and they urge venues and firms to review how the code is received and distributed to reduce incomplete reports.
Country of branch fields
The FCA also noted that they were seeing errors in reporting the country of branch of the buyer and seller (Field 8 & 17). They explained that these fields are only entered for trades where the buyer or seller listed is a client of the reporting firm. Also the country listed is that of the firm’s branch receiving or executing the order, not the client’s country.
Completeness, Accuracy and Timeliness (CAT)
The FCA reiterated the importance of having systems in place to monitor accuracy of reports. This includes reviews of submitted data that it matches trade details captured in front office systems. They also explained that just because a report is accepted by the FCA doesn’t mean it was correct as the regulator’s validations don’t cover all trade scenarios. In addition it was stated that firms should consider whether they have the capacity to properly understand correct forms are reporting and identify errors.