Frequently asked questions

  • Dodd-Frank was one of the largest and most comprehensive financial regulations post the 2008/2009 Financial Crisis. One of the main objectives was to restore public confidence and to prevent another financial crisis from occurring.
  • Title VII of the Commodity Exchange Act (CEA) grants the CFTC regulatory authority over swaps, except for security-based swaps, which are regulated by the SEC. CFTC is tasked setting the rules for the implementation of the Dodd-Frank Act and for providing enforcement.
  • Under the Dodd-Frank Act, a swap includes all financially settling swaps and options, physical forwards and physical options.
    OTC derivatives swaps need to be a reported to a registered Swap Data Repository (SDR).
CFTC reporting is a single sided reporting regime and reporting counterparty is determined by the hierarchy of the counterparties. Any entity that trades over the counter derivatives in the U.S. would need to determine if they have reporting obligations.      
All swaps across Interest Rates, Credit, Equity, FX and Commodity derivatives.        
December 05, 2022      
  1. For swaps executed on SEF or DCM must report to a SDR ‘as soon as technologically practicable’
  2. For off-facility swaps, one party to the swap (reporting party) to report data as determined by the following reporting party hierarchy (unless otherwise agreed by the parties prior to the execution of the swap):
      • If one party is an SD and other party is an MSP, SD is the reporting party
      • If no party is an SD but one party is an MSP, MSP is the reporting party
      • If both parties are SD or MSPs, parties to agree who is the reporting party
      • If neither is an SD or MSP, but one party is a financial entity, financial entity is the reporting party
      • In all other cases, parties to agree who is the reporting party
Swap transaction and pricing data are generally reportable ‘as soon as technologically practicable’ after execution. As per industry standard, a trade is reported within 15 minutes of execution. — Part 43 provides for time delays for the public dissemination of data of “block trades” and large notional off-facility swaps        
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      
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      
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      
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      
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.      
Credit Default Swaps (CDS) are the most common form of credit derivative reported under EMIR. One of the questions arising when reporting a CDS is the correct format for identifying its underlying security to be used in the report. Under EMIR, there are three methods cited by the 2015 Final Report of the regulation.
  • ISIN – When an ISIN is available, firms should report the ISIN of the bond or other instrument within the Underlying field (field 2.8). Also, “I” for ISIN is entered in Underlying Type (field 2.8)
  • Reference entity – For CDS transactions of sovereign and municipal debt that don’t have an ISIN, EMIR allows firms to enter the two letter ISO 3166 country code in field 2.84 of Reference Entity. For a country or municipal specific debt, the country code is followed by a dash “-” and up to three alphanumeric code of the county.
  • Indexes – As many CDS transactions aren’t based on a specific ISIN and follow an Index, EMIR also supports these products. When reporting a CDS based on an Index, firms enter ‘X’ for Index in field 2.7 (Underlying Type) and the full name of the index or ISIN if it exists in field 2.8 (Underlying Field).
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      
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.      
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.      
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.      
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.        
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.      
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.  
Securities Financing Transaction Regulation, better known as SFTR, is a regulation created by the European Commission and supervised by ESMA for EU entities and FCA for UK entities. The daily reporting regime covers Security Financing Transactions (SFTs) and requires EU and UK firms to report their transactions to an approved Trade Repository (TR).      
The Reporting obligation of SFTs came into force in 2020 for Credit Institution, Investment Firms, CCPs, CSDs, Insurance companies, Funds, IORP and relevant third-country entities and early 2021 for NFCs.      
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). There are three ESMA approved TRs, DTCC, REGIS-TR and KDPW; and one FCA approved TR: DTCC.      
SFTR 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.      
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 (COLU) update report on subsequent days the position remains open. Update fields in the COLU 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 no Early Termination message (ETRM) should be 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 (i.e. 180 till maturity from April 11th 2020 for a bank or 180 days till maturity from January 11th 2021 for a NFC).    
The first phase of SFTR which was due to go into effect on April 11th 2020, was postponed until July 11th 2020.  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 regard to backloading open SFTs, ESMA clarified that only positions open from the new July 11th date will fall under scope of the backloading requirements.      
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.      
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, FX, and Commodity asset classes was postponed by a year and only went into effect on October 1st, 2021. However, as things return to normal, the MAS rewrite is scheduled to be implemented in October 2024 as planned.  
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, FX and Commodity asset classes was postponed and went 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 MAS 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.      
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 Corporates – incorporated in Singapore but not licensed by MAS with trades above SGD 8 billion over past 12 months
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.      
DTCC GTR      
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.      
Concerning MiFIR Transaction Reporting EMSA explicitly requires completeness and accuracy controls via RTS 22 Article 15: “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.” EMIR and SFTR have mandated Pairing and Matching and furthermore, ESMA issues periodic reports regarding holistic data quality where they remind regulated firms that they: “Are strongly encouraged to use regulatory data in their own internal risk and compliance management processes. In doing so counterparties incentives to report accurate data will be further aligned.”, clearly stating firms are not encouraged to fire and forget.      
While comparing the population of transactions reported against the number accepted by the regulator, firms can identify reporting issues such as rejected records or ones which were missed entirely along the reporting chain. Regarding accuracy, a field-by-field comparison is required to solve issues. For example an issue with the trade size: in a client’s trading system there may be X shares traded in a particular stock where X, for several reasons, can be regressed on its way to the regulator as reporting fields pass through several systems and vendors. A regulator would still accept an inaccurate transaction as they will not know it on T+1, but only by comparing the transaction size field, will an issue with the reporting be identified by the firm’s controls function.      
Investment firms submitting daily MiFIR reports to their National Regulator (NCA) have an obligation to review these on a regular basis. To this end, the UK FCA, for example, provides firms the ability to request transaction report via their Market Data Processor (MDP) portal.  Firms need only apply for access credentials from the FCA to gain access. Once downloading the XML files, a firm should perform a 3-way reconciliation from their Gold-Source internal system (i.e. EMS/OMS or trade booking risk management system) to their reporting partner / ARM to the NCA itself for population and accuracy of each and every field. Please contact us to see how we can help with this.      
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.      
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.      
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      
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      
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.      
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.      
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
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
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.      
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 are 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      
CME Trade Repository, DTCC, Unavista, ICE Trade Vault, KDPW, NEX Abide, Regis-TR      
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      
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.      
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.      
Following BREXIT, UK firms no longer need to report under ESMA. However, the FCA adopted SFTR and so trades still need to be reported to an FCA approved TR (currently DTCC only as stated earlier).
So far, changes to the regulation made by ESMA are usually also adopted by the FCA, although there is usually a lag in the go-live date between ESMA and FCA.