19. How Portfolio Managers must Transaction Report

19.1. Discretionary trading activity

Portfolio managers acting in a discretionary capacity, must identify themselves as the client when submitting transaction reports to the FCA. This means they will be both the reporting firm and the client on a transaction report.

Typically all such activity is conducted as agent for the underlying client funds.

19.2. Advisory trading activity

On occasion portfolio managers will advise clients to execute trades in particular instruments. Such advisory trades, where infrequent can be reported in the same manner as discretionary trading activity.

19.3. Execution trading activity

Where the portfolio manager’s client instructs them to execute a trade in a particular instrument the underlying client providing the instruction should be identified in the transaction report. This is in keeping with the principle of identifying the order placer or originator of a trade for market abuse detection purposes.

This is therefore standard broker reporting as the portfolio manager is in effect acting as a broker.

19.4. Identifying the basis for trading

As a consequence of the requirements above which requires different reporting approaches dependent on the nature of the trading it is essential that portfolio manager’s systems are able to capture the type of trading or source of the instruction to trade to distinguish between trades it has executed on a discretionary or advisory basis to those it has entered into on behalf of a client on an execution only basis as in the below scenarios:

Scenario 1: Discretionary and advisory trades (where 17.2.2g is not or cannot be relied upon)

Reporting firm Counterparty 1 Counterparty 2
BIC/FRN of Portfolio manager Trade counterparty (broker) BIC/FRN of portfolio manager

Scenario 2: Execution only trades on behalf of a client

Reporting firm Counterparty 1 Counterparty 2
BIC/FRN of Portfolio manager Trade counterparty (broker) BIC/FRN or internal SDS code for the client

Reporting from the portfolio manager’s perspective

In the situation below, the firm is acting in two roles, as portfolio manager and as broker. In such circumstances a transaction report is required from the firm as portfolio manager but also reporting the firm in the client/Counterparty 2 field as the fund manager and as broker in the Counterparty 1 field.

Scenario 3: Situations where the firm acts as both the broker and as the fund manager

Reporting firm Counterparty 1 Counterparty 2
BIC/FRN of Portfolio manager Trade counterparty (BIC/FRN of Portfolio manager) BIC/FRN of portfolio manager

Care must be taken to ensure such trades are not filtered as intra-entity trades which are exempt from reporting. However, in scenario 3 these trades must be reported by the firm as broker. As there is a transfer of economic risk from the firm to the fund (albeit the decision maker is the same entity, but different desks, on both sides of the trade) a transaction report is required from the firm as broker.