We are five full months into MiFID II. Competent Authorities are still experiencing teething issues with the instrument data, validations, response messages and providing reporting firms with extracts of their submitted reports. Firms are increasingly moving their focus from addressing validation issues and handling of response files to looking at the accuracy of their reporting. All parties should be working on the most pressing issues following the 80/20 rule.
“Firms are increasingly moving their focus from addressing validation issues and handling of response files to looking at the accuracy of their reporting.”
Working on validations to get all the transaction reports accepted by the regulator may not be the most pressing issue. Firms can still be reporting 100% of their records inaccurately. It is therefore important that attention is turned away from validations to accuracy testing and identifying the valid but wrong population.
Whilst there are many areas of reporting uncertainty, ESMA has decided to focus its guidance on strategy trades. Strategy trades are relatively rare in the reporting world and affect only a very small proportion of total reportable activity.
This post summarises the new guidance from ESMA.
Complex Trade ID
A strategy trade is a trade which is composed of more than one financial instrument or legs, where the execution of the trades are contingent on each other and a single price is given for the strategy contract as a whole.
When transaction reporting strategy trades, the Complex Trade ID (field 40), must be populated with a code that links each of the legs. This code must be unique to each strategy trade for the reporting firm. ESMA’s latest update to its Transaction Reporting Q&A on Friday (25 May) provides more guidance on how and when the Complex Trade ID should be populated.
The aim of the Complex Trade ID is to notify the users of the transaction report that the instrument reported is part of a broader strategy trade and to enable the user to identify any related transactions. In the guidance they make it clear that:
- The price reported is the price of the strategy as a whole not the price of the individual leg being reported.
- The Trading Venue Transaction Identification Code (TVTIC) should be populated for each reported leg of the strategy. Presumably, this would only apply where the strategy itself was executed on a trading venue and the legs execute as part of that strategy. There is more complexity here and more scenarios which the Q&A does not address.
- The Complex Trade ID field must be populated even where only one leg of the strategy trade is reportable. It is still a strategy trade and the price must reflect this.
- Where the strategy itself is allocated an ISIN you still report the individual legs and not the strategy as a whole.
- In terms of reference data to be reported for strategy trades, the Q&A makes clear that the reference data for the legs must be submitted, not the reference data for a “strategy instrument”.
National ID validations
The only other update in the Q&A relates to the validations published for the national identifiers. We have commented in a previous post as to the complexity the approach gives rise to. This is the second update to these validations that have been published. The latest is:
- Czech Republic: “It should be noted that the special character “/” is just a separator and should be omitted in transaction reports.”
Presumably there have been problems with firms including “/” in their identifiers.
Kaizen’s accuracy testing checks all MiFID II data fields to ensure your reporting is correct. To find out more about how we can help you avoid the ‘valid but wrong’ problem, please get in touch.