The FCA has published its latest newsletter, Market Watch 74, and once again has used it to draw firms’ attention to common transaction reporting errors.
This Market Watch is of particular interest as it tackles several issues not highlighted in the past, as well as reminders for some more familiar issues.
Despite the number of firms downloading data from the regulator’s Market Data Processor (MDP) showing a steady increase year-on-year, the FCA has reminded firms of their legal obligation to reconcile their records to MDP data and note that they have contacted firms who haven’t done so.
Not all EU NCAs make this as straightforward as the FCA, and the legal obligation remains to reconcile front office records to the latest point at which the data is available, be that from the ARM or NCA.
However, despite the increase in the number of firms accessing their data from the MDP there has been a fall in the number of firms raising errors and omission forms. This is somewhat surprising and contrary to our experience at Kaizen where although quality is – as noted by FCA – improving, many firms are still finding and resolving issues dating back to MIFIR go-live in 2018, resulting in costly and time consuming replay exercises.
Identification of IDM and EDM
There has not been much written guidance here from NCAs in the past as to “who” firms should populate in this field. The FCA has given some clarity and suggests that an individual named in either of these fields should have more than “limited practical involvement in those decisions at a transaction level.”
The ESMA guidelines here have always, in our opinion, been clear but the FCA has reminded firms that reports linked by a Complex Trade ID should be reported with the same price. The regulator has also reminded firms that adherence to ESMA guidelines is still expected.
When is an agreement not an agreement, or perhaps when is an arrangement not an arrangement, those are the questions…
The legislation is not prescriptive but the receiving firm needs to populate its report with data received from the transmitting firm. This, in itself, implies that the transmitting firm has to seek some assurance that the “receiving firm” has a mechanism in place to take this data and will make the necessary reports to ensure its obligation to report will fall away under Article 4.
Unfortunately, some firms relying on Article 4 didn’t get that assurance and have therefore not been making the correct transaction reports.
Transmitting firms must make certain they have evidence of the provisions in place with their receiving firms to benefit from Article 4.
Inconsistent Price & Quantity Notation
The devil is in the detail here but there should be no excuse for firms not reporting the majority correctly. ESMA/FCA validation rules will only prevent some of common errors. ESMA also mentioned price discrepancies reported for CDS in its recent Data Quality Report albeit from a slightly different angle.
TVTIC on Negotiated Trades
The FCA has clarified this is an optional field where the trade is bought under the rules of the venue.
The FCA has clarified the reporting of the Fund Manager and not the Fund, and the subsidiary and not the client of the subsidiary.
Fields 42 – 56
The regulator has reminded firms of the importance of getting supplementary instrument data correct where an ISIN is not used in Field 41. They have commented on this several times in previous editions of Market Watch.
Could it happen here?
Following the arrival of any Market Watch, best practice dictates that firms now take steps to reassure their Senior Managers that all is well and that these errors wouldn’t, couldn’t, or shouldn’t, be happening on their watch.
In Market Watch 74, the FCA makes it clear that firms should heed their warnings:
“….some firms are not paying sufficient attention to our warnings on the importance of reporting transactions to us in a complete, accurate and timely manner.”
“We may conduct further work on the areas covered in our Market Watch articles to ensure appropriate remedial actions are undertaken by firms.”
Perhaps firms would be wise to read “may” as “will”.