5. What types of Transactions are Reportable?

5.1. Reportable Transactions – General Requirement

The movement, reallocation or transfer of financial instruments within the accounts of one legal entity are reportable where the movement, reallocation or transfer is as a result of an agreement to transfer rights in a reportable financial instrument between clients of the firm or between the firm (or a member of its group) and a client, and where the movement, reallocation or transfer involves a transaction.[1]SUP 17.1.7G In general a firm has a reporting obligation when it “executes” a transaction in a financial instrument. There is no formal definition of the term “execute” but FCA have indicated that they will consider a firm to have executed a transactjob-oution in the following scenarios

  • when the firm transacts directly with an execution venue (immediate market facing firms); or
  • for firms falling outside (1) above a firm transacting on its own account or on behalf of a client (whether through a regulated market, MTF or outside them e.g. with a broker)[2]TRUP v4, page 11

For the purposes of MiFID (and the Transaction Reporting rules) the meaning of a transaction is limited to the purchase and/or sale of a financial instrument and does not include:

  • securities financing transactions (includes repos, stock borrow loan or buy sellback transactions); or
    the exercise of options or covered warrants; or
  • primary market transactions (such as issuance , allotment or subscription in respect of new shares such as placements ,rights issues and the creation and redemption of exchange traded funds)[3]TRUP v3, section 3.3, page 9

5.2. Inter fund transactions with no broker are not reportable

Within the definition above, transfers between funds by a fund manager without the use of a broker would be reportable. However, the FCA has stated that such transfers provide little information of value to the FCA and firms can choose not to report such trades.[4]Transaction Reporting Forum, January 2011 Inter-fund transfers effected through a third party such as a broker or another fund manager would be reportable.

5.3. Intra-entity trades are generally not reportable

Generally, internal bookings between trading books of the same legal entity are not reportable as there is no change of beneficial owner.[5]TRUP FAQ 8.6 However, transfers of beneficial ownership between clients within a single legal entity are reportable, the exception to this, as stated above, is where there is a transfer between funds managed by the same fund manager. In such circumstances the FCA have stated that these trades are not required to be reported.

5.4. Intra-group bookings are reportable

Intra-group bookings between two group entities are reportable as the booking reflects a change in beneficial ownership. Note if both entities involved in the transaction are regulated by FCA they each have a separate requirement to report the transaction.

5.5. Market and Client Side Transactions are Reportable

Pre-MiFID firms did not have a requirement to make a transaction report to FCA if the reportable transaction has been transacted on a Recognised Overseas Investment Exchange and a list of such exempt exchanges was published by the FSA. Post MiFID this exemption no longer exists and firms are required to make arrangements to ensure that the market side and client side of each of these type of transactions in reportable instruments (dual listed) are reported to FCA via an approved reporting mechanism.[6]TRUP v3.1

5.6. On and Off Exchange Transactions are Reportable

The range of reportable instruments includes all instruments admitted to trading on a regulated market or prescribed market whether or not the trading is carried out on such a market.[7]TRUP v3.1

5.7. Primary Market Transactions are Not Reportable

Primary market transactions (such as issuance, allotment or subscription) are not reportable. This includes rights issues and the creation and redemption of ETFs[8]TRUP v3, section 3.3. This means that all transactions, other than those in derivative products, between the issuer and the first taker as Principal are exempt from reporting. However if an instrument is already dealt on a regulated market, all secondary transactions will be reportable, e.g. if the firm takes up a primary issue in reportable securities and then on-sells its allotment of that primary issue to clients at the market price, the on-sell of the securities to the clients will not constitute the first take-up of securities and will be reportable. Where the on-sell is at the issuance price (possibly minus a commission charge) this would still constitute a primary market trade and would not be reportable.

Over-reporting of primary market trades has previously been permissible.[9]In discussions with some industry participants (April 2014) the FCA has indicated they consider reporting of primary market trades as mis-reporting

5.8. “Grey Market” Transactions are Reportable

Whilst grey market trading (the trading in securities ahead of their admission to trading) takes place prior to admission to trading on a regulated market, the FCA requests we submit reports for such transactions. Typically, the ISINs for grey market traded securities are not available at the point of trading. As such the trades cannot be reported at the time of the trade but must be reported once the ISIN becomes available. Consequently, a process must be in place to capture and report such trades.

5.9. The exercise of Option and Covered Warrant Transactions are Not Reportable

All results of option transactions are not transaction reportable (e.g. the physical delivery of a share, or the creation of a future, following the exercise of an option contract or covered warrant are not reportable).[10]TRUP v3, section 3.3 Covered warrants are warrants issued by a third party distinct from the company to which the warrants relate.

5.10. Exercise of ordinary warrants are reportable (i.e. not covered warrants)

Where a company warrant is exercised this is reportable on the basis that these fall outside of the exception included in MiFIR.[11]COMMISSION REGULATION (EC) No 1287/2006 Article 5

5.11. Redemptions are not reportable

Various instruments when they redeem will result in the transfer of a security, for example, redemptions in relation to an Equity Linked Note (ELN). Such redemptions are not reportable.

5.12. Securities Financing Transactions are Not Reportable

Securities financing transactions are specifically excluded from the MiFID definition of “transaction” and are therefore not transaction reportable. This includes: stock lending, stock borrowing, repurchase or reverse repurchase transactions and buy-sell back or sell-buy back transactions.[12]TRUP v3, section 3.3

5.13. Asset Trading Transactions are Not Reportable

FCA have previously stated that asset trading transactions (including novations and assignments) are out of scope since this type of activity would not fall within the definition of a “transaction” for MiFID purposes, which only covers the purchase and sale of financial instruments.[13]TRUP FAQ 8.11

FCA and ESMA are working on building a framework for reporting such events as changes to existing contracts, so called life cycle events. CESR published guidance on the reporting of OTC transactions under CESR/10-661 however, FCA has stated that implementation of the CESR guidelines for derivatives is optional for firms.

5.14. Job-outs and carry/care brokers

Where the firm does not have membership of an exchange it will use a third party broker, a ‘carry broker’ or ‘care broker ‘ to execute the trade. Such transactions are also sometimes known as ‘job-outs’. On receipt of a client order, the firm will pass the order details but often not the client details to the carry broker for execution on the market. In this situation the firm is transaction with its client and meeting the client order by undertaking a trade with its broker. As such the firm would have to report two trades (or a single principal cross).

If they are a MiFID Investment firm the job-out or carry broker will have a reporting obligation as they are executing the trade. They will report the client details in those circumstances where the carry broker receives information about the client and subsequently transactions directly with the client. Where the client details are not passed to the carry broker, the carry broker will report a trade with the firm.

Where the firm receives the order from the client and transmits the order and client details to the carry broker, this is known as the receipt and transmission of an order (RTO) under MiFID. The FCA has introduced a requirement for firms to report such RTOs where client details are not passed to the executing carry broker as detailed above.

FCA have stated that “client details” means the information that would enable the receiving party to identify the client. This would mean client name, address, potentially date of birth and other identifying characteristics.

The job outs are reported by the firm submitting a transaction report showing the carry broker in CP1 field and the client reference (BIC or client code) in CP 2 field.

More details on RTO reporting scenarios are included in section 14.2.

5.15. Give ups to Hedge CFDs and Swaps are Reportable

Where a firm enters in to a transaction in the market and gives it up to another firm for hedging against a CFD or Swap, FCA expect to see a transaction report from both parties. Further details on reporting such trades can be found in section 12.9.[14]TRUP v1, section 6.3.6

5.16. Amending trade details

If a trade is cancelled or amended in such a way that the details of the transaction originally reported are no longer valid, the firm is required to submit either a cancellation for the original report and where relevant provide a new transaction report with the corrected details or provide an update transaction report with the corrected details.

On transaction reports, the transaction reference number, reporting firm ID and the date and time of the transaction together uniquely identify the transaction report in the FCA’s systems. Therefore if one of these fields is to be corrected, the only mechanism available is to cancel the original transaction report and then submit a new transaction report with a new transaction reference number. “Update” transaction reports cannot be used in this instance.

Care must be taken to ensure the amended trade details continue to be correct. For example, where new details are added, the original trade time must be maintained.

5.17. Share buy-back programmes are reportable

A buy-back programme is where a client entity has publicly traded securities and wishes to purchase some of these securities typically to cancel or to hold in treasury. For example, BP as a client has BP shares in issue. BP can only buy-back its own shares are part of a structured programme (as BP could be deemed to be in possession of inside information). Such buy-back programmes are transaction reportable i.e. they are not classified as primary market transactions.

Buy-back programmes can be structured in different ways so care must be taken to establish what and how the executions are to be transaction reported. See section 16.5. onwards for further details on how to transaction report share buy-back programmes.

5.18. DEA reporting

Where the firm provides Direct Market Access (DMA) or Sponsored access (sometimes referred to as Direct Electronic Access (DEA))[15]Direct Market Access (DMA) or Direct Electronic Access (DEA) facilities to its clients transaction reports must be made in respect of the DMA trades undertaken.

DMA/DEA reporting is dealt with in section 15.

5.19. Self-hitting trades

Where a firm trades on exchange, particularly if they are trading in significant volumes, they may hit an order on the order-book which has been placed by another desk, algo or DMA client submitting orders for the same firm. The guidance clarifies that such trades are to be considered transactions and are therefore reportable irrespective of subsequent clearing activities which are likely to net out the two trades to zero. Where the trade is immediately cancelled prior to a trade report being published, then an execution is deemed not to have taken place and a transaction report is not required.

Firms are expected to have implemented reporting in compliance with the above by 6 August 2015.

   [ + ]

1. SUP 17.1.7G
2. TRUP v4, page 11
3. TRUP v3, section 3.3, page 9
4. Transaction Reporting Forum, January 2011
5. TRUP FAQ 8.6
6. TRUP v3.1
7. TRUP v3.1
8. TRUP v3, section 3.3
9. In discussions with some industry participants (April 2014) the FCA has indicated they consider reporting of primary market trades as mis-reporting
10. TRUP v3, section 3.3
11. COMMISSION REGULATION (EC) No 1287/2006 Article 5
12. TRUP v3, section 3.3
13. TRUP FAQ 8.11
14. TRUP v1, section 6.3.6
15. Direct Market Access (DMA) or Direct Electronic Access (DEA)