Frequently asked questions

EMIR, short for European Market Infrastructure Regulation, is an EU based regulation that went into effect in 2014 and requires EU legal entities to report in a T+1 basis information about their derivative trades. The regulation covers both OTC and exchange traded derivatives. It was created as a response to the 2008/09 global financial crisis of which derivatives played a large part of the collapse. Read more
When MiFID went into effect in 2007, lawmakers included a section under Article 21 that focused on best execution under the subtitle of “Obligation to execute orders on terms most favourable to the client”. Overall, the goal of Article 21 was to force investment firms to put in place a Best Execution Policy that governed how they executed client trades. Key points of Article 21:
  • Investment firms should “take all reasonable steps” to obtain the best possible price when executing client orders, taking into items such as costs, speed, size and likelihood of execution
  • Investments firms should create an “order execution policy” that can be implemented
  • Different asset classes should have specific policies applied to them such as the best venues for customer orders to be executed at
  • Investment firms should have in place methods to monitor that customer executions are following their policy
  • Per client request, investment firms are required to provide means to demonstrate to customers how their orders are executed within the execution policies
Securities Financing Transaction Regulation, better known as SFTR, is a new regulation created by the European Commission and supervised by ESMA. The daily reporting regime covers Security Financing Transactions (SFTs) and requires EU firms to report their transactions to an approved Trade Repository (TR).
Part of Article 27 of the MiFID II framework that governs Best Execution requirements, RTS 27 defines a set of 9 standardized quarterly reports required to be created by Execution Venues. According to ESMA, included within Execution Venues are Trading Venues, Systematic Internalizers, Market Makers and other Liquidity Providers
The regulator explicitly has required reconciliation in RTS 22 Article 15 Clause 3: “Investment firms shall have arrangements in place to ensure that their transaction reports are complete and accurate. These arrangements shall include testing of their reporting process and regular reconciliation of their front-office trading records against data samples provided to them by their competent authorities to that effect.”
RTS 27 gathers pre and post trade information to create set standards of data around best execution The reports are composed of nine tables of data, primarily consisting of transaction information and pre-trade data. The collected data includes average price and volume details of trades at specific points of the trading day, order completion rates, trading costs, and even outages disclosure. The report is to be published publicly on a quarterly basis in a machine-readable format.
Required to report under RTS 27 are Execution Venues. According to ESMA, falling under the ‘Execution Venue’ status are trading venues, systematic internalizers, market makers and other liquidity providers. Below is a definition of these four groups:
RTS 27 is a quarterly report. For each completed quarter, investment firms have until the end of the following quarter to report
Investment firms, Insurance companies, Banks, NFCs, Credit Institutions, CCPs SFTR. When does SFTR go into effect for Financial Firms? April 11th 2020 – Banks and Investment Firms July 11th 2020 – CCPs and CSDs October 11th 2020 – AIFs and UCITs
No, all SFTs are regarded to be reported under SFTR. When and what do Non-Financial Companies (NFCs) need to report under SFTR? SFTR covers all EU entities including non-financial companies (NFCs). Therefore, NFCs have a similar obligation to report SFTs than that of their FC counterparties. A major difference is that the regulation doesn’t go-live for NFCs until January 11th 2021, nine months after it begins to go into effect for certain investment firms.
In their 2020 Final Report, ESMA published that they included SFTs transacted by EU AIFMs for non-EU AIFs to be under scope of the regulation. However, AIMA, an industry body as well as a number of TRs have gotten written feedback from ESMA that prior to the October 2020 go-live date for AIFs, SFTs by non-EU AIFs will be removed from scope and no longer reportable under SFTR.
In ESMA’s SFTR Guidelines, they explain that any trade concluded by an EU branch of a non-EU entity and the SFT is “committed to the books and records” of the EU branch, is under scope of SFTR.
SFTR reports are to be submitted to approved Trade Repositories (TR). Prior to SFTR’s go-live, ESMA approved four TRs, DTCC, Unavista, REGIS-TR and KDPW (more on this).
SSFTR reports are to be submitted in the XML ISO 20022 format following the specific schema created for SFTR. The XML requirement includes submissions to Trade Repositories (TRs), TR to TR messages and TR to NCA reports. Companies using CSVs will have to put in place a process to convert them to XML.
UTI matching is the process of checking that two counterparties to a trade that have a SFTR reporting obligation are both using the same UTI to submit the SFTR report. Report Pairing is the process of reviewing the fields of matched UTIs to ensure trade data is the same and passes ESMA validation rules.
Execution timestamps will pass validation rules up to an hour apart.
In their 2020 Final Report on Technical standards under SFTR and certain amendments to EMIR, ESMA published a flow chart of UTI generation and the responsible parties for creating and distributing it. For bilateral transactions without a shared intermediary or venue responsible for UTI creation, ESMA backed that counterparties should agree and use the IOSCO CPMI format of using a logic based on a LEI and unique trader reference identifier to create a UTI.
Early termination (ETRM) reports are submitted when a previously reported SFT trade was closed prior to its maturity or end-date. An Error (EROR) message is used to cancel out an SFT that was reported but either never took place or wasn’t required to be reported. Once reported as Error, the UTI for the submission can’t be reused in the future. Correction (CORR) is used when a valid report was made but there was an error in one or more fields that needs to be corrected. A Modification (MODI) is used to update fields of a previously reported transaction and information that isn’t updated in a Collateral or Valuation submission.
Following the submission of a New Transaction (NEWT) submission, open repos and BSB positions require a daily collateral (COLL) update report on subsequent days the position remains open. Update fields in the COLL submission include changes to price and market value of the collateral.
The current SFTR does not include exemptions of reporting of intragroup SFT transactions. This contrasts to EMIR of which the recent EMIR REFIT created an exemption for intragroup trades.
Margin loans almost always begin with the signing of a brokerage agreement and credit drawn at a later date. For SFTR, a new Margin Loan report is submitted on the date the loan facility has been drawn and not the date it was signed. In cases where the margin loan agreement is based on a single currency, only one UTI for the loan is reported. Once reported, subsequent changes in the margin loan value are submitted as Modification messages. In cases where the loan value returns to zero, this value is adjusted in a Collateral message. As long as the brokerage loan agreement is in place, there is now an Early Termination message (ETRM) sent even if the loan value is currently at zero and no credit is being drawn. As such, assuming the loan agreement is based on one currency, a single UTI is used for the entirety of submissions under the margin loan agreement.
Open SFTs with more than 180 days remaining to maturity from an entity’s go-live date need to be reported within 190 days of the reporting start date. Back loading affects FCs and NFCs alike but is linked to their respective reporting start dates (ie 180 till maturity from April 11th 2020 for a bank or 180 days till maturity from January 11th 2021 for a NFC).
MiFIR is a set of rules that was created alongside the  MiFID II directive. Although MiFIR was technically passed as its own regulation, it nearly is always referred to in connection to MiFID II. This is due to much of MiFIR’s content being an updated version of reporting rules that existed in the original 2004 MiFID document.  Read more
EU investment firms with a MiFID Investment Firm license designation are required to report under MiFIR. Exemptions exist for firms with a AIFM or UCITS license that also provide MIFID Investment services but that is not their main source of business.
The law by ESMA: Introduced in 2007, MiFID I Article 21 – Investment firms (IFs) required to take all reasonable steps to obtain, when executing orders, the best possible result for their clients. With the introduction of MiFID II, the bar has gone higher from “reasonable steps” to “all sufficient steps ”. The FCA added in TR 13 /14 on top of the above: “Delivering best execution is fundamental to market integrity and to the delivery of good outcomes for clients who rely on agents to act in their best interests”. This obligation is referred to as the best-execution obligation. Learn more
Short for Approved Reporting Mechanisms, ARMs are the MiFID II equivalent of trade repositories (TR). Like TRs, ARMs are authorized by the European Securities and Market Authority (ESMA) to collect investment firm trade transaction reports. The data is then maintained, secured and stored in a way that it is accessible by ESMA and EU NCA’s to analyze the reports. Read more
At the end of the day, data reported to an ARM is then sent to an NCA. So why not submit directly to the NCA? There a few benefits that ARMs provide. 1) Companies operating in multiple EU countries can use a single integration with an ARM to submit to multiple NCAs. 2) Some NCAs charge an integration fee which is more expensive than using an ARM. 3) ARMs provide validations to reports which limits incorrect data received by NCAs. 4) ARMs support various file formats including CSV files which is much easier to work with than XML files required by NCAs.  Read more
TRAX, Euronext, Bloomberg, UnaVista, KDPW, Deutsche Borse, NEX
As part of the MiFIR reporting obligation, there is a requirement to include an ISIN for each product that trades on an regulated Trading Venue. ISINs can be found by searching in the ANNA website or ESMA’s Financial Instruments Reference Data System (FIRDS) database.
Trading of bitcoins and other cryptocurrencies are only obligated to be reported under MiFIR if the product traded or it’s underlying instrument trades on an EU trading venue. When is XOFF used instead of the Trading Venue’s four-letter MIC Code  Exchange traded products require a four-letter MIC code of the trading venue or XOFF entered in the ‘Execution Venue’ field to be valid. In cases where an investment firm isn’t an exchange member and transaction on a trading venue via an agency or clearing broker, XOFF should be entered and not the venue’s MIC code.
Yes, EEA venues that list options are required to register ISINs for each individually traded option. Each individual ISIN is then required to be used in MiFIR reports when reporting a new option trade.
ESMA defines trading venues as those registered in the EEA as Regulated Markets. Any product that trades on a trading venue or a derivative based on a product that is TOTV is required to be reported under MiFIR.
Unlike MiFID, non-financial firms are also required to report under EMIR. The regulation requires any Legal Entity to report their derivatives trades. Read more
CME Trade Repository, DTCC, Unavista, ICE Trade Vault, KDPW, NEX Abide, Regis-TR
No, EMIR’s requirement for ISINs of the derivative’s underlying product is limited to cases where an EEA venue or XOFF is listed in the trading venue field.
EMIR exempts FX spot and forward transactions that settle on a T+3 basis. However, rolling spot FX trades are reportable under EMIR as ESMA defines them as a MiFID derivative. Read more
According to ESMA, CFDs are deemed as derivatives and are required to be reported under EMIR. This includes Bitcoin CFDs. However, due to Bitcoins and Cryptocurrencies lacking a valid three digit ISO currency code (such as USD or EUR), Bitcoin CFDs are unable to be submitted under the FX asset class for EMIR. A workaround is to report them as a commodity and use an accepted ISO code as the base currency, such as USD for BTC/USD trades. Worth noting that ESMA and other NCAs are of the ISO problem that exists for bitcoin derivatives but has yet to provide a definitive answer on the best method to report and if firms should report them as commodities in the interim. Read more
As MBSs are a US centric product, there isn’t a lot of discussion about them from ESMA and European regulators. They also don’t appear at all in the EMIR guidelines or report formats. As such, the decision whether they are under scope depends whether a firm believes they are a derivative or not. As they don’t exist in EMIR’s guidelines, firms that decide to report them will find that there are no perfect matches for Asset Class and Product Type for a MBS under EMIR. A possible solution is to use the Interest Rate (IR) asset class as there is more flexibility in available product types such as Bond Swap.
EMIR is a dual-sided reporting obligation. This means that both sides of a trade have an obligation to report if they are an EEA entity and use the same UTI. ESMA and NCAs then match the information from a UTI to ensure that both sides are reporting. Read more
Standing for Unique Trade Identifier, a UTI is an alphanumeric identifier required for each trade transaction. For EMIR reporting, both counterparties to a transaction need to report the same UTI for their leg of the trade. Read more
There is a hierarchal structure for who is responsible for generating the UTI. For centrally cleared products, the responsibility falls on the exchange or trading venue. For OTC, the sell-side dealer typically generates the UTI. The UTI is then obligated to be distributed in a timely fashion to the buyside participant. Read more
Transaction reporting regulation requires firms to report in major currencies. In many cases, such as shares traded on the LSE, prices are quoted and traded in pence (minor currency). Hence, when reporting you should divide by 100 in order to report correctly in GBP.
Reporting Notional Amount under EMIR has led to confusion due to different products having separate calculation requirements. To rectify this problem, ESMA published in November 2017, and an entire section (3a) of their EMIR Annex that is devoted to these calculations and should be followed when calculating Notional Amount (Link).
This will occur mainly due to not using the correct currency (Major/Minor currency) or reporting a price that includes commissions. The regulation requires that you report the net price.
The regulation requires report T+1 and many customers are lacking the ability to do so, not because they aren’t submitting their files on time but because their provider is having technical difficulties, or their provider isn’t providing them visibility to the status of the trades in order for them to fix any rejections in a timely fashion.
Yes, with EMIR, you are required to report the life cycle of the trade or position. In many cases, we have seen with Abide customers that they are reporting their open end of day positions. For example, if a position was open yesterday but got closed during the day, instead of reporting it as closed (quantity/ financial exposure = 0) they just dropped it from their reporting file. From ESMA’s perspective the last record they have on this position is an open one (with a value) and that is incorrect.
With MiFID, FX customers tend to report the base currency and the trade currency opposite to the way it is supposed to be. In turn, this then influences the currency they report the notional amount on.
With MiFID, we have encountered a few cases where customers are reporting the identification of the seller and the buyer in the trade in the wrong direction, in other words the seller was reported as buyer and buyer as seller.
In MiFID, you are required to define whether you are Dealing on Your Own Account (DEAL), operating on Match Principal (MTCH) or working on Any Other Trading Capacity (AOTC). Incorrectly reporting trading capacity will lead to other errors such as identifying correct buyer/sellers and Execution within Firm fields. in and thus are responsible to decide what risk to take and when to go to the market to hedge this risk as well as the Match where you get to automatically hedge every trade in order to avoid having any financial risk. You are also required to define if you are working in any other capacity (AOTC). We have seen that customers are misrepresenting how they are actually trading in the above cases.  
In response to Covid-19, Singapore’s MAS has issued a slate of measures to help financial firms focus on their customers. Among them are postponements of upcoming regulation covering derivative reporting and new margin requirements. Specifically, the last phase of OTC Derivative reporting that covers Equity and FX asset classes has been postponed by a year and only goes into effect on October 1st, 2021.
The first phase of SFTR which was to go into effect on April 11th, was postponed until July 11th.  In a request for relief, ESMA addressed difficulties with the April start date and asked NCAs to relax their enforcement until July. The ESMA request was accepted by all NCAs. In regards to backloading open SFTs, ESMA clarified that only positions open from the new July 11th date will fall under scope of the backloading requirements.
In part due to volatile trading conditions, regulators have stated to investment firms they should continue to monitor for abuse and submit Suspicious Transaction and Order Reports (STORs) to them. In the FCA’s case, they added that firms should apply “enhanced monitoring, or retrospective reviews” in order to “continue to take all steps to prevent market abuse risks”. However, some NCAs have accounted for the likelihood that reduced staff may increase the time it takes for firms to submit. Examples are BaFin of which stated last month that reports should be submitted in a “reasonable period of time in the current circumstances”. Overall, among various trading related regulation, language from regulators is that MAR is an area they should continue to have a focus on despite the current difficulties from Covid-19.
Report dates for RTS 28 2019 and RTS 27 Q4 2019 data have been postponed to July 30th 2020, from April 30th and March 31st respectively. The delay in publishing RTS 27/28 reports was requested by ESMA and accepted by EU NCAs.
Investment firms should first consider any guidelines about working from home (WFH) conditions published by their local regulator. Most NCAs have addressed WFH in their Covid-19 updates and included information about recording phone correspondance and alerting the regulator of compliance problems. Regarding Transaction Reporting, firms should take advantage dashboard and analysis tools for daily checks. A number of firms have recorded breaks with their reference data updates which will result in rejected submissions of which their dashboards should alert them to. Firms need to also consider IP restrictions when working from remote locations as their ARM or Trade Repository only whitelists specific IP addresses for submissions.
COVID-19 has brought to light that even the most prepared firms have gaps in their contingency plans. One way to spot regulatory functions that aren’t being completed or that will need to be fixed in the future are through control tools. For regulatory reporting, this includes visual dashboards to review submission rejections. A spike in rejections over the last few weeks could indicate a key person involved with populating reference data being unavailable. Quickly spotting what and why errors are taking place can help companies make corrections before a larger systemic issue arises that requires major fixes. In addition, firms can benefit from applying regulatory reconciliation processes. This is an audit trail from trade to regulator to ensure all transactions are properly reported.
With such a slight wording difference, in their MiFID II Q&A (link), ESMA answers what is the difference between sufficient and reasonable. According to ESMA, the new MiFID II directive requires firms to create a “higher bar for compliance” when compared to MiFID I’s requirements. The higher bar includes:
  • Setting an execution policy to achieve ‘best possible results’
  • Process to ensure that ongoing executions are according to broker execution policy
  • System to review that new products are offered per company execution policy
  • Procedure for execution issues to be escalated to senior management
  • Overall, complying with the new standards means having a built-in process to review and handle execution related questions. This can include calculating slippage rates of customer orders, ensuring that fill prices are within accepted market pricing, reviewal process and the ability for compliance teams to fix any problems.
Despite a few regulators such as the FCA that have analyzed best execution, most regulators haven’t cared much about enforcing best execution for the past 10 years. So why do they care now? The answer is that ESMA is now putting on pressure to local regulators to enforce best execution. Overall, the reviews show that ESMA has made it clear that best execution is an area of concern. Specifically, ESMA has shown its desire for regulators to be more proactive with supervising best execution ahead of the new standards for MiFID II. The result is that the regulatory sleeping giants that were ignoring best execution under MiFID I are awakening for handling it under MiFID II.
MAS instituted derivative reporting requirements in 2016 which were updated in 2018. The report requires certain firms to report information about their OTC derivative trades (exchange trade derivatives are excluded) in a T+2 basis. The first phase of the regulation only included firms with a Banks and Merchant Banks (both local and foreign) license.
After focusing on holders or Bank and Merchant Bank licenses, MAS derivative transaction reporting expanded to certain Capital Markets, Finance Company, Insurance and Subsidiary Bank license holders in 2019. These companies exceeding minimum assets under management (AUM) and trading minimums will be required to start reporting Credit and Interest Rate Derivatives trades in October 2019. The last phase of OTC Derivative reporting that covers Equity and FX asset classes has been postponed and goes into effect on October 1st, 2021.
Unlike other derivative reporting regulation around the globe, Singapore’s regulation provides an exemption for Exchange Traded Derivatives (ETDs). As such, only over the counter (OTC) derivatives are required to be reported. Whereas, exchange traded futures and options contracts are exempt.
In their derivative reporting FAQ,  the MA answered that CFDs and other rolling derivative products are under scope to be reported. As expiration dates are rolling, trades should be amended daily with an updated expiration date.
Of the over 750 capital markets license holders in Singapore, only 75 to 100 are expected to meet the minimum thresholds to fall under the reporting scopes. Minimum thresholds are: Subsidiary Bank – subsidiary of a bank incorporated in Singapore with trades above SGD$ 5 billion over past 12 months Insurer – licensed under the Insurance Act with trades above SGD$ 5 billion over past 12 months. Capital Markets licensee – Licensee with trades with accredited investors and institutions are more than SGD$5 billion over the past 12 months or is Fund or Real Estate Management and AUM is above $8 billion.
While comparing the number of transactions sent vs. the number of transactions accepted by the regulator, we can identify many reporting issues including identifying rejections or discovering records being missed. In many cases, a field-by-field comparison is required to solve the issues. A simple example of this can be an issue with the trade size. In a client’s trading system, there may be X number of shares traded in a particular transaction and this X can, for one of many reasons, be altered on its way to the regulator as the trades pass through different systems and vendors. The regulator would still accept the transaction as they will not have a way to know that this is a wrong number, but only by comparing the transaction size field, will an issue with the reporting be identified.
Overall, after investment firms submit MiFIR reports directly to the FCA, another regulator or via an ARM, they have an obligation to review data received by their NCA. In the UK, the FCA provides regulated firms the ability to request transaction report submissions through the regulator’s Market Data Processor (MDP) portal. Once downloading the available daily XML file, it should be compared to a company’s internal trading reports to ensure all transactions under scope are submitted correctly.
Under the ASIC reporting legislature, investment firms are required to submit to an approved trade repository information about OTC and ETD derivative trade transactions. The report is composed of two parts; information on each transaction and end of day positions. Reports are to be submitted in T+1. An exemption exists under Part 2.2.8 of the regulation for some types of firms to report only end of day positions, referred to as Snapshot Reporting in the legislation.  
DTCC GTR and CME Group ATR
As of July 2019, ASIC requires CFD brokers to report all transactions, regardless if they are closed intraday.
Yes, valuation updates are required for existing open positions.
ASIC is authorized under its jurisdiction to penalize licensed firms for failure to report under the 2013 Derivative Transactions (Reporting) Rules. Penalties include monetary fines of which existing enforcement by ASIC have been over $250,000.
Yes, as the AIFM is non-EU and out of scope, the responsibility for the report falls on the EU AIF to generate the SFTR report.
Most TRs and ARMs have opened and registered dual EU/UK entities to support their current clients under EMIR and MiFIR given a hard Brexit. In terms of investment firms, this puts the burden on them to make sure they are reporting their data to an ARM or TR that is authorized to receive their submissions. TRs and ARMs have already started the process of notifying clients that they should alert them of whether they will need to submit their reports to their UK or EU entity post-Brexit.
If a jurisdiction change is needed, companies will be required to sign a new contract with the ARM or TR as well as gain access to a new sFTP location that supports their country. For most firms, this isn’t expected to be much of a big deal. But, companies that are currently reporting trades for both UK and EU branches will have more to prepare for. Existing report files will need to be split by jurisdiction and sent to the appropriate submission folders. Specifically, EMIR reports that can support multiple Reporting Entities from both EU and UK firms in a single file will need to be split.
Under a split EU/UK EMIR scenario, reports need to be sent to the authorized jurisdiction of the reporting entity. This is the case currently with MiFIR reporting, and one of the main reasons very few firms offer delegated reporting for this regulation. To support delegated reporting, sell-side firms need to have in place a process to both identify whether their counterparty is EU or UK based, and be able to split reports depending on jurisdiction.
Due to the new complexities, this is expected to cause sell-side firms such as banks and brokers to once again evaluate the viability of providing delegated reporting for their customers. Some may decide not to provide it at all, while others may charge a fee for the service. To continue providing delegated reporting, a sell-side firm will need to have in place a process to identify which trades are reported to the UK and those to the EU. The system will then need to create and submit two reports based on the jurisdiction as well as handle messages from multiple TRs. Alternatively, they can work with an external provider such as Cappitech (to help create and submit EMIR/MiFIRreports.
While field format changes aren’t expected to be a problem, delegated reporting provided by sell-side firms under the FCA’s new EMIR framework could be. One of the unique aspects of EMIR is that it is a ‘double-sided’ reporting regime. Each EU counterparty to a trade reports its side of the transaction. Both parties are required to use the same unique transaction identifier (UTI) on the report in order that the data can be matched. In a sell-side to buy-side firm trade, the sell-side counterparty is responsible for generating and distributing the UTI within enough time for the buy-side firm to report their EMIR obligation in T+1. Unlike transaction reference numbers that are distributed in near real time at the point of trade confirmation, a trade’s UTI is often not created until later. For buy-side firms, this has made it difficult for them to report under EMIR as they may not receive UTI information to submit reports within the T+1 obligations Due to their inability to share UTI information, most EU based sell-side firms that support the fund industry provide delegated reporting to their customers. When a sell-side bank or broker reports their side of an EMIR report, they also prepare a counter report for their customers. The report is then submitted to their respective TR, typically the DTCC. While delegated reporting from banks makes it easier for investment funds and non-financial companies to comply with EMIR, it reduces transparency if a bank or broker doesn’t explain to their customers how they report.  Also, due to costs involved and responsibilities, sell-side firms would prefer not to provide delegated reporting. As such, delegated reporting has become more of an accepted reality due to the double-sided nature of EMIR rather than a desired outcome. Under Brexit, the complexities of delegated reporting become even more challenging.