MiFID II/MiFIR Transaction Reporting: Top 10 Items To Check Off Today
Welcome back! Here at Eze, we’ve been working hard on preparations to support Transaction Reporting under Markets in Financial Instruments Regulation (MiFIR), which comes into force on January 3, 2018. With the deadline less than a year away, we wanted to share what we’re working on to address this particular challenge – but more importantly, set out some concrete steps you can take today to get yourself in the best possible position for transaction reporting success.
Here are just 10 items to check off your list:
1. Establish whether you’re in scope...
There was a great deal of uncertainty last year while we waited to see which part of MiFID II the U.K.’s Financial Conduct Authority would gold-plate, thereby extending the impact to AIFMs and UCITS managers. The FCA has since made it clear that it would not be gold-plating transaction reporting obligations, so AIFMs and UCITS managers are, at least for the time being, exempt. That said, given the complicated nature of some businesses, and the possibility of some other national regulators choosing to gold-plate, Eze strongly recommends you seek legal counsel to establish whether your investment firm, or branches of your firm, or any other aspects of your business could be in scope.
2. …Especially if you’re not a Europe-based firm.
Firms headquartered outside of the European Union, but with branch offices in one or more EU states and which conduct MIFID business such as portfolio management or execution of orders, may very well find themselves in scope for transaction reporting on activities conducted by their branch offices. As before, we strongly recommend you seek legal counsel to understand how you may be impacted. Many of our U.S.-based clients have already notified us of their need to implement MiFIR transaction reporting.
3. Understand the difference between “transaction” and “trade”.
Transaction reporting and trade reporting are often easily confused, so it’s important to understand the difference before we go any further. Transaction reporting involves the post-trade submission of transactions in eligible instruments in a maximum timeframe of T+1. Trade reporting involves the almost-real-time publication of OTC transactions in listed instruments. The one with 65 fields you’ve heard about in the media? That’s transaction reporting.
4. Don’t panic about the 65 fields.
It’s important to remember that the report specifications are intended to be used by all investment firms—buy-side, sell-side and venue—and for all types of business, including those that have clients who are individuals rather than funds. The spec has to be sufficiently flexible to accommodate all of the permutations of transactions and relationships that exist in the market. Take a look through the 65 fields from the perspective of an investment manager, and you’ll see very quickly that the data required is substantially less than 65 fields, and some of those that are required can be enriched or mapped by an Approved Reporting Mechanism (see below). As an example, a typical investment manager will not need to report the first name, last name, or date of birth of either their buyer, their buyer decision maker, the seller, or the seller decision maker, since all of these will be legal entities and not individuals. Just this one aspect removes 12 fields from the list of 65, so we’re already down to 53.
5. Check your data collection capabilities.
We’re working on changes to all points of order entry or transaction capture across the suite to add new fields such as Investment Decision Maker and Legal Entity Identifiers into our head versions. We fully acknowledge that a system upgrade or hotfix to take advantage of these features may not be suitable or possible for some clients, so we are exploring ways of using user-defined fields and other technical workarounds in existing versions.
6. Get your ARMs around the situation.
ARMs are Approved Reporting Mechanisms that provide transaction reporting services. Essentially, they sit between you and the regulator and provide a range of services to make transaction reporting less painful, such as instrument eligibility lists, data enrichment, mappings, business validation and reject management. The ARMs also provide web-based portals for your operations team to manage the inevitable rejects and monitor how successful you’re being at transaction reporting.
We’re working proactively with three such ARMs to establish connectivity, submit transaction reports according to their specifications, and collaborate throughout the year to ensure that our combined offerings can solve your problems. We strongly recommend that you initiate a review of the ARMs asap to find the one that suits your business needs. Get in touch with your Eze representative for the contact details of the ARMs we’re currently working with.
7. Personal Identifier Information – consider your comfort level.
Storing personal identifier information, such as the passport number of your portfolio manager or trader, brings with it many concerns around data protection. The Eze Software Suite will not be storing any personal information; instead we will be passing over to the ARM the internal identifiers for the relevant individuals, such as the system username, and will be reliant upon the ARMs to store the data securely and map the username we give them to the required information. It is essential that you cover this in your discussions with ARMs to ensure this is included in the service they are offering.
8. Dive into the details.
Transaction reporting under MiFIR is intricate. MiFIR covers almost all asset classes, which in itself presents a number of challenges, and requires the buy-side to consider a wide range of scenarios. The single best thing you can do for your business is to get into the detail immediately and understand the intricacies. As an example of the intricacies to be understood, transaction reports are comprised of both the market side (buy-side to broker) and client side (allocations), and can differ in their construction depending on whether you have one underlying client or several. As another example, whether you report each individual fill or at the completed order level changes according to the nature of the relationships you have with the street and how they treat your order. Making sure you understand what scenarios apply to your business and how they should be reported is critical to success.
9. Take advantage of resources.
ESMA released their final guidelines on transaction reporting in October 2016. The document can be found here and is essential reading for the buy-side.
If you are members of AIMA, we recommend downloading their “MiFID II Guide for Investment Managers.” A link to the document can be found here, but requires an AIMA login and password to access it.
Throughout 2017 there will be a plethora of events, seminars, webinars and roundtables hosted by everyone under the sun (including Eze Software), and we plan on attending as many of them as possible.
10. Set aside an hour for our on-demand webinar on MiFID II.
I’ll be taking part in a Financial News webinar on the 22nd February that will be available on demand. Expect to hear lots about transaction reporting and plenty of other MiFID II topics.
Thanks for reading, and stay tuned for more blog posts throughout 2017 dealing with a number of MiFID-specific topics. Subscribe to the blog here.
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Adam De Rose
Adam De Rose, Associate Director, Product Management, joined SS&C Eze in January 2014 and is now a Product Manager focusing on MiFID II and Best Execution. Previously, he was responsible for selling Eze EMS to hedge funds and asset managers in Europe, and prior to that was a Sales Engineer across the wider Eze Investment Suite. Prior to SS&C Eze, Adam worked at TradingScreen on U.K. Hedge Fund EMS sales from 2012 to 2014.