Another area where we frequently find a large number of errors when we run our Kaizen quality assurance tests on client transaction reporting data is with the numerous ‘country of branch’ fields, namely:
- Country of the branch for the buyer (7)
- Country of the branch for the seller (16)
- Country of the branch membership (37)
- Country of the branch responsible for the person making the investment decision (58)
- Country of the branch supervising the person responsible for the execution (60)
Why these Country of Branch obligations are important
Transaction reporting is not just about market abuse detection; the reports are also designed to help the regulators monitor firms’ more general activities, including compliance with the business conduct rules. This enables the competent authorities to meet their obligation to uphold the integrity of the markets, as detailed in Article 24 of MiFIR.
Key to meeting this obligation is the sharing of reports between competent authorities. For example, if you are a UK firm reporting a transaction to the FCA that involved the Paris branch taking an order from a client, then you should populate Country of branch for the buyer with ‘FR’ for France. This will enable the FCA to share it with the AMF (the French competent authority). If you failed to do this, the report would not be shared and the AMF would not be able to monitor the activities of that French branch.
It is also a sin to populate this field when you shouldn’t have. For example, if you populated the field with ‘DE’ for Germany, the FCA could share this report with the German competent authority when there was no valid reason to do. So the regulators are liable to be very upset if you under-populate, over-populate or incorrectly populate these fields. Be careful – the rules governing these fields can appear fiendish and there are plenty of traps to be avoided.
Country of the branch for the buyer/ Country of the branch for the seller
These fields identify the country of the branch that accepted the order from the firm’s client or made an investment decision for a client.
- Country of the branch for buyer should only be populated if the entity in the ‘Buyer identification code’ (7) is a client
- Country of the branch for the seller should only be populated if entity in the ‘Seller identification code’ (16) is a client
For example, where the German branch of a French firm receives an order from a client to sell:
- ‘Country of the branch for the buyer’ is blank
- ‘Country of the branch for the seller’ is ‘DE’
- This field identifies your branch; not the nationality of your buyer/seller.
- Even if there is no branch involved in accepting an order or making an investment decision, you still need to populate the relevant field if the buyer or seller is a client. So, for example, if you are a UK firm making an investment decision or buying as agent on behalf of a client (i.e. where the client is in the Buyer ID field) then Country of the branch for the buyer still needs to be populated with ‘GB’ even though no branch is involved.
- Note carefully the term ‘client’. MiFID defines client as “any natural or legal person to whom an investment firm provides investment or ancillary services”. This can sometimes be hard to determine, but there are some obvious conclusions:
- The CCP will never be your client.
- Where you are transmitting an order to a broker for execution, that broker will not be your client
- Your firm will not be your own client (!)
So, for example, the Country of branch for buyer should be left blank where the buyer is the firm itself, or a market counterparty, or a CCP (and similarly for country of branch for the seller)
Phew, those fields were quite difficult. Thankfully, the other three are relatively easy.
Country of the branch membership
This field should identify the country of a branch of the investment firm whose market membership was used to execute the transaction.
Well that sounds easy; so what are the traps?
- Even if there is no branch involved, but market membership was used to execute the transaction, the filed still needs to be populated – e.g. if you are Dutch company using your head office branch membership, this field should be populated with ‘NL’.
- Don’t be tempted to over-populate – if your firm isn’t a market member for the venue identified in the report, the field should not be populated.
Country of the branch responsible for the person making the investment decision
This snappily titled field simply identifies the country of the branch of the investment firm responsible for the investment decision.
- Only populate this field if you have populated ‘Investment decision within firm’ (57) with an identification code for a person. If field 57 is blank or is populated with an algorithm identifier, this field should be blank.
- Even if there is no branch involved, you still need to populate this field with country code of the head office if field 57 identifies a person.
The pub quiz fact
- On 23 September 2019 the regulators corrected a mistake they had made with their validation rules which forced firms to populate this field when the Venue field was populated with the MIC of a systematic internaliser. Following this correction, firms should not populate country of branch membership where the venue is populated with a systematic internaliser MIC.
Country of the branch supervising the person responsible for the execution
Another snappily titled field and this one simply identifies the country of the branch of the investment firm that supervises the person responsible for the investment decision. I guess there’s a strong clue in the title.
- Only populate this field if you have populated ‘Execution within firm’ (59) with an identification code for a person. If field 59 is populated with an algorithm identifier or with the code ‘NORE’, this field should be left blank.
- Even if there is no branch involved (I think you know where I’m going to go with this now) you still need to populate this field with country code of the head office if field 59 identifies a person.
Where to go to for help
Firstly, if you are unsure about any of the reporting standards, or just need a refresher, we would heartily recommend our core training course which will help ensure you are interpreting the MiFIR transaction reporting details correctly.
If you have any doubt on whether you have been reporting correctly, contact us. Our accuracy testing service takes all the transaction reports you have submitted over any given period and applies over 1400 tests covering all the fields that comprise a report. As many firms have discovered to their cost, there is no point hoping for the best when it comes to reporting. You need to have total confidence that your reporting is complete and accurate.
You can discuss country of branch fields further over on our Kaizen LinkedIn page…
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