16. Reporting Anomalies

16.1. Total return swaps (TRS)

These instruments have all the features of a CFD and the FCA were considering reporting them as such. However, until notified otherwise they should be reported as swaps with a derivative type of S.

16.2. CFDs (Contracts for Difference)

CFDs are entered into subject to the firm being able to locate a suitable hedge.

As normal the market side activity in building the hedge for the CFD would be reported at individual execution level including the market and time of market execution.

The CFD should be reported using the time of last fill and the average price for the hedge.

16.3. Contingent Credit Default Swaps (CCDSs)

These are standard CDSs which are a type of insurance on the default of a sovereign or company debt security but where the payout is determined by a separate contingent factor. Typically payout for a CCDS is based on the value of an interest rate, FX or commodity swap. Care must be taken as although OTC derivatives in interest rate, commodities or FX are not reportable, CCDSs are reportable where the reference entity is a reportable instrument (unless the CCDS references multiple issuers).

16.4. Dynamic Swaps and Portfolio Swaps (PSwaps)

Dynamic swaps and portfolio swaps are swap contracts that allow the client to amend the constituents of the underlying basket for swap without entering into new contracts.

Each individual component transaction is to be transaction reported. Therefore changes in notional of an underlying or additions and removals from the swap portfolio are transaction reportable.

These are reported on the same basis as CFDs with the last fill time for any hedge and the average price achieved for the hedge.

Dynamic swaps and PSwaps should be reported as derivative type S for swap with a meaningful and consistent description in the instrument description field.

16.5. Share buy-back programmes

There are different types of buy-back arrangements that can be entered into. As such compliance should always be consulted to ensure the correct features of the buy-back are identified and properly transaction reported.

16.6. Derivative based buy-backs

Where the buy-back is structured using a derivative, the derivative will need to be reported to the FCA. Often the derivative will apply over a period of time and the volume and price to be paid will be unknown until some point in the future. Where the above circumstances hold the derivative should be reported as a complex derivative completing all details where they are known. The transaction report should be made as soon as it is entered into and certainly within the T+1 reporting requirement using the trade time of when the parties became bound by the terms of the derivative contract.

Under the terms of the derivative the firm will seek to supply the physical securities to the client or registrar for cancellation. The delivery of the physical to the client was agreed at the time the transaction was entered into and was therefore represented by the original transaction report. Therefore a further transaction report on delivery should not be reported. To report such a transfer would be a spurious report as a transaction arises only in reference to the purchase or sale of a financial instrument (i.e. entry into the forward agreement).[1]Commission Regulation (EC), No 1287/2006, Article 5 The market side transactions entered into will of course be reportable as principal trades through the normal flow.

16.7. Arrangement based buy-back programmes

Where the programme does not commit the parties, the transactions entered into should be transaction reported as normal. Market side transactions and client side transaction reports must be made detailing the time each trade was executed. If the trades are executed under the rules of an exchange then the venue ID for the relevant exchange should be used and should match the trade reports unless multiple execution venues have been accessed in which case XOFF should be used.

16.8. Buy-backs based on VWAP

Where the buy-back programme is at a VWAP or guaranteed VWAP programme, a single end of day transaction report should be made detailing the VWAP price and the venue ID for the relevant exchange should be used. Normally, the client side trade is executed under the rules of an exchange and should be reported with the exchange MIC in the venue ID field irrespective of how the fill is the trade were sourced.

The time of trade should be time the client side trade allocated to the client which is the time it is booked in the system.

16.9. Strategy trades

Strategy trades are trades where a derivative and its associated underlying are traded at the same time. For strategy trades executed on Aii markets the underlying, which often has an ISIN identifier, cannot be reported using the Aii market’s MIC code as an Aii identifier is expected by the ARMs and FCA’s ZEN system. The guidance clarifies that in such instances “XOFF” should be reported in the venue field and the ISIN of the underlying in the instrument identifier field.

16.10. Oslo Børs and LSEDM linked order book

The “linked order book” provides members of the London Stock Exchange Derivatives Market with access to liquidity on the OBX and OBOSX futures and options as well as derivatives in the 18 most liquid shares on the Oslo Børs.

Trading through an LSE membership on the Linked order book would deem the trade an LSE trade and should therefore be reported as XLOD rather than XOSL.

When using Oslo Børs membership such trades are deemed XOSL rather than XLOD trades. This reflects the different clearing approach for each trade with the XLOD trades being cleared by LCH vs SIX-clear for the XOSL trades.

   [ + ]

1. Commission Regulation (EC), No 1287/2006, Article 5