Part 2: Important Findings

From Recent FCA Market Watches

11 November 2020

Across three separate publications of their Market Watch newsletter (59, 62 and 65), the FCA provides comments on frequent errors, reinforces best practices, and highlights the importance of a sound control framework. Expanding on these topics, this discussion that takes an in-depth look at transaction reporting issues alongside resolution and remediation.


CON-412 Rejection Code from the FCA

The CON-412 (instrument not valid in reference data on trading date) remains one of the most common errors assigned to rejected trades by the FCA. Market participants are encouraged to follow the guidelines outlined in FCA Market Watch 59 which include performing a number of checks on their side with regard to the instrument and its reportability.

Investigating the CON-412 rejection code starts with determining the reportability of the instrument. For sake of argument, let's assume the instrument was traded on an EEA trading venue therefore the transaction is definately reportable. (See Reportable Transactions section of Part 1 of this blog series)

However, the ISIN could not be located in the FIRDS database. Therefore, on a high-level regulatory view, the transaction may be interpreted as not reportable. This is certainly not the case as mechanics of the transaction indicate otherwise. One common reason for this error is that the trading venue did not appropriately submit the reference data to the FIRDS database (RTS23 Reference Data Reporting). Since it is the responsibility of the trading venue to submit the reference data, firms have little recourse apart from reporting the issue to the trading venue and keeping accurate records documenting the attempted transaction submission to the FCA.

Another common reason for the CON-412 error is that the Operating MIC was noted in the transaction report instead of the Segment MIC. It is important that the instrument reference data not only appear in the FIRDS database but it must be also be valid on the trading date for the MIC Code specified in the transaction report. Data is referenced in FIRDs by using the ISIN, MIC Code and Trading Date combination. If any one of these is incorrect, the instrument will not be located, thus resulting in a CON-412 error. The FCA has stressed the importance of using the correct MIC for the trading venue.

Qomply maintains an extensive historic database containing all ISINS reported to FIRDS and is able to readily reconstruct the instrument data held by FIRDS at the time of a trade. By doing so, the Qomply software can easily pinpoint the issue causing the CON-412 error and provide guidance on remediation.

Cancellations and Corrections

Data compiled by Qomply indicates some market participants are improperly submitting corrections to previously-submitted transactions. There appears to be an assumption that the new transaction, having the same transaction ID, will overwrite a previously-submitted, and accepted, transaction.

Qomply has observed that, at times, the FCA has rejected a transaction if another transaction was previously-submitted with the same transaction ID. In these instances, it would be safe to assume the FCA has rightly considered the subsequent transaction to be a “duplicate” transaction. However the FCA has not always rejected transactions that share the same transaction ID. It may be the case that the FCA accepted the transaction as a completely new transaction rather than a corrected transaction. Therefore, it is important to stress that any corrections to a transaction should be proceeded by a cancellation if the trade was previously accepted.

Furthermore, it has been observed that many market participants are not properly monitoring the acceptance of corrections sent to the FCA. For example, let's say a firm submits a cancellation for a previously-submitted transaction, then they submit a correction that is subsequently rejected by the FCA, however the firm does not attempt a resubmittal thereafter. Therefore, in the eyes of the FCA, the trade was cancelled and no further action taken. This may not be the intention of the firm. These trades are slipping through the net as no subsequent action was taken to rectify the rejections. Therefore, resubmissions should be monitored with the same diligence as the original submission.

Trade Reconciliation and Diagnostic Heathchecks of Transaction Reports

Across all three Market Watches (59, 62 and 65), the FCA repeats its message of trade reconciliation and diagnostic healthchecks as forming part of the core requirements for a comprehensive control framework.

Combined points from these publications are:

• “Firms must have systems and controls in place to ensure their transaction reports are complete and accurate.”

• “To perform a valid transaction report reconciliation, firms should not use the transaction report data provided by their ARM. They should, instead, request a data extract directly from the FCA. But some continue to rely on data samples provided by their ARM for their transaction report reconciliations.”

• “[…] conduct regular reconciliation of front office trading records against data samples provided by competent authorities.”

• “[]…Firms they should not assume a transaction report was accurate because it was accepted by the FCA. This is because our validation rules are not intended to identify all potential errors and omissions. We are reiterating this message as some firms continue to use transaction report acceptance rate as a standard for assessing the completeness and accuracy of their transaction reports.”

Qomply offers a software solution for firms to independently run periodic health checks and reconciliation on their transaction reports. This software is intended to form part of a firm’s systems and control framework. It is completely automatable thereby allowing firms to demonstrate due diligence.

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