Transaction Reporting: Six Common Failings

Hot on the heels of two well publicised MiFID I fines for transaction reporting failings, the FCA has published Market Watch 59, the content of which is totally monopolised by transaction reporting.  This signals that the regulator is now squarely turning its attention to failings under the MiFID II regime. The FCA once more reinforces the importance of complete and accurate transaction reports. 

Here are the six areas in which the FCA are clearly losing patience:

1. Reconciliations – Despite repeated reminders, it seems that not enough executing entities are requesting sample data from the Market Data Process (MDP) in order to conduct a three-way reconciliation. This is a crucial part of a firm’s transaction reporting systems and controls, and mandatory under RTS 22 Article 15. The FCA cautions that firms “should not assume that a report was accurate because it was accepted by the MDP” – the value might be valid but it can also be wrong!
2. Time – It appears that some firms have not considered the impact of recent daylight savings time changes on their clocks. British Summer Time is 1 hour ahead of Universal Time (UTC) which is the time zone that transactions must be reported in.
3. Price - Monetary amounts should be reported in the major currency (i.e. pounds) instead of the minor (pence). Reporting in the incorrect format creates a misleading impression of the value of the transaction to the FCA, which significantly impacts on its market abuse surveillance capabilities. Price of ‘Zero’ or the designation of ‘NOAP’ (not applicable) have also been used by firms in instances where not permitted.
4. Venue – The FCA remind firms that segment Market Identification Codes (MICs) should be used where available. Operating MICs should only be used when segment MICs are not available.
5. Identifiers – The FCA is still seeing basic Buyer and Seller misreporting; often where one is stated as the other. This is in addition to the use of generic (or ‘dummy’) identifiers. Additionally, defaulting to one type of identifier (i.e. passport number) as opposed to paying due regard to the identifier priority table in Annex II to RTS 22 has been noted by the FCA.
6. Trading Capacity – Where firms are trading AOTC (any other trading capacity), they should not also act as the buyer or seller of the instrument; the FCA has identified this inconsistency and presumably others in relation to trading capacity. This again leaves the FCA with an unclear view regarding how firms are executing and who the ultimate beneficial owners are.

These findings are accompanied by yet another message to those that submit Instrument Reference Data (IRD). Given how crucial it is in enabling instrument validation, this data needs to be accurate, complete and timely but still a high volume of transactions is being rejected due to invalid IRD. The FCA has asked those in receipt of such rejections to review the key aspects (such as checking whether the instrument is reportable, and making sure the corresponding MIC code is correct) before contacting the FCA.

The FCA also appears unhappy that firms may be identifying errors in, or omissions from, their reports and failing to cancel and correct them. Further, there are other firms that are correcting their transaction reports without submitting corresponding errors and omissions notifications (to the FCA). The message is clear – identify errors, submit errors and notifications forms to the FCA and then correct those mistakes. The regulator is watching!

On-demand webcast, Transaction Reporting: Expectations vs. Reality:

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About the Author

Charlotte Longman is a Senior Principal Consultant focused on UK Compliance. She is responsible for developing a mixed portfolio of clients, with a focus on capital markets firms that provide brokerage and investment trading services across equities, fixed income and FX markets. Within the projects team, Charlotte specialized in the development of our MiFID II services.

Prior to the acquisition by ACA, Charlotte was Senior Consultant at Cordium, where she had undertaken two external secondments acting as Compliance Manager whilst simultaneously enhancing the firm's market abuse compliance monitoring programme. 

Before this, she was Deputy Head of Compliance at a leading FX Broker where she provided day-to-day support for the Global Head of Compliance. Before that, she was the Compliance Officer at a mid-size CFD and Spread Betting provider, holding the CF10 controlled function for three years.

Charlotte obtained her LLB Law from the University of Hertfordshire.