20 April 2020
This is the second of our blog postings on Comm transaction reporting nations. I hope to address some more of the guidance from the FCA and add observations gained from the analysis of Transaction Reports we have seen over the last two years.
In Marketwatch 59 the FCA highlighted that LEI values in the buyer and seller fields of reports are sometimes populated with dummy values where the LEI is not known. This breaks the rule: 'No LEI, No Trade,. that was part such a large part of the MiFiD 2 introduction. Firms should endeavour to find the correct LEI values for the clients they are dealing with.
Whilst considering the buyer and seller fields, the FCA also noted that some firms are supplying their own LEI in these fields for AOTC (Any Other Trading Capacity) trades. If a firm is dealing on its own account, this would suggest the trade should have a trading capacity of DEAL.
A large number of transaction report records are rejected as the ISIN on a record is not valid. Our analysis has found a several causes of these rejections.
Often, the ISIN is not valid to trade on the date a transaction is reported. This can be due to the trading venue not updating the FIRDS reference data system in a timely fashion. When an ISIN is admitted to trading on a venue, the venue should report the date of admission to ESMA via the FIRDS system. If a transaction is reported to the NCA before the traded ISIN is reported to FIRDS, the transaction record will be returned with a ‘Pending Instrument Validation’ warning. If, after 7 days, the ISIN is still not reported to FIRDS with the correct admission date, the transaction will be rejected. These are cases where transactions are reported on venues prior to the ISIN being admitted. This will cause rejections if not dealt with quickly.
Another area of confusion is the MIC code used in its trading venue field. Venues often have multiple MIC codes. A venue will have an overarching MIC code, called it's 'Operating' mic code. Within this the venue will have ‘Segment’ MIC codes for different instrument types. The ‘Segment’ MIC is the one expected by NCAs in transaction reports. The ‘Operating’ MIC should only be used as a fall back in the absence of an appropriate ‘Segment’ MIC.
In reporting aggregate client transactions, a special account INTC can be used. It is used to link market and client transactions. There is confusion around the use of the INTC account, in so much as the account must not be used to aggregate fills for the same client. The intention of INTC is to group orders across multiple clients. The other point to note about the INTC account is that, if it is being used correctly, the account should balance to zero at the end of the business day. This should be monitored to ensure compliance and that all market trades are matched to clients.
The Qomply suite of tools can be used to check transaction reports national identifiers prior to submission to reduce errors and rejections. Contact us now to see how Qomply’s tools can help you.
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