Point Nine - p9ft.com€¦ · Point Nine 14 MiFIR Reporing Requirem ents Transaction Reporting...

Point Nine

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Post Trade Excellency

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MiFID II/ MiFIR: Everyone is talking about THESE

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Point Nine

Agenda

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• Best Execution

• Investment Firm Publication Requirements

• Execution Venue Data Publication Requirements

• Differences between MTF, OTF and SI

• Differences between hybrid trading systems

• Transaction Reporting

• Trade Reporting

• Financial Instrument Reference Data

• Commodities Position Reporting

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Best Execution

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Who needs to publish the information?

Investment Firms that execute client orders on EU and third country execution venues

What needs to be published?

• Data for each of the top 5 execution venues in terms of trading volumes where the firms executed

client orders in the preceding year.

• Information on the volume and number of orders executed on each execution venue

• Information is published in respect of each class of financial instruments.

The classes of financial instruments referred are:

• Information should be provided separately for retail and professional clients respectively

Quantitative Data

Investment Firm Publication Requirements (RTS 28)

Equities

Debt instruments

Interest Rates

Credit

Currency

CFDs

Emission Allowances

Securitised and Commodities Derivatives

SFTs

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Qualitative Data – assessment of quality of execution

Execution factors of

price, costs, speed,

likelihood of

execution and others

Close links, conflicts

of interest and

common ownership

Specific arrangements

regarding payments

made/ received,

discounts, rebates or non-

monetary benefits

received

Factors that led to a

change in the list of

execution venues

listed in the firm’s

execution policy

An explanation of

how order execution

differs according to

client categorisation

Criteria given

precedence over

immediate price and

cost when executing

retail client orders

Data or tools relating

to the quality of

execution

Output of a

consolidated tape

provider

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Where information should be published?

Information should be published on the website of the investment firm, in a machine-readable format,

available for downloading by the public.

How frequently should information be published?

Annually.

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Execution Venue Data Publication Requirements (RTS 27)

Who needs to publish the information?

• Trading Venues:

• Systematic Internaliser - An investment firm that deals on its own account by executing client orders outside a Trading Venue.

Purpose is to ensure the internalization of order flow by investment firms does not undermine the efficiency of price formation on RMs, MTFs

and OTFs

• Market Makers

• Other Liquidity Providers

A multilateral system ran and/or managed by a market operator subject to enhanced government requirements which gathers or

facilitates the gathering of multiple third-party buying and selling in financial instruments

Regulated Market (RM)

A multilateral system ran by an investment firm or a market operator, which gathers multiple third-party buying and selling in financial

instruments

Multilateral Trading Facility (MTF)

A multilateral system which facilitates a multiple third-party buying and selling interests in bonds, structured finance product, emission

allowances and derivatives. An OTF is not a RM or an MTF and unlike those, an OTF has the discretion as to how to execute orders

Organised Trading Facility (OTF)

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MTF Vs OTF Vs SI

MTF OTF SI

Financial Instruments All Non-equities only All OTC

Matching system Non-discretionary Discretionary Discretionary

Restrictions • Cannot execute client

orders against

proprietary capital

• Cannot trade on

matched principal

• Cannot execute client

orders against

proprietary capital

• Market making is

independent

• Matched principal is

allowed if client is

informed

• Cannot operate an SI

• Cannot operate a

multilateral trading

system

Participants Regulated Regulated and

Unregulated

Clients only

Trading in a Matched principal: For matched trading capacity the investment firm is dealing on own account for a client. A transaction

where the facilitator interposes itself between the buyer and the seller to the transaction in such a way that it is never exposed to market

risk throughout the execution of the transaction, with both sides executed simultaneously.

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What needs to be published?

Fo

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tha

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Publish certain information including but not limited to:Differentiate the amount and nature of reported data

according to:

Request for

quote

Continuous

auction order

book

Continuous

quote driven

Any other

hybrid system

Trading Systems

Trading Models

Trading Platforms

Information on Execution Venue and Financial Instrument

Price Quality

Costs applied by the Execution Venue

Speed of execution

Likelihood of Execution

Settlement Size

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What are the different hybrid trading systems?

Type of System Description

Request for quote A trading system where a quote or quotes are provided in

response to a request for quote submitted by one or more

members or participants. The quote is executable exclusively by

the requesting member or participant. The requesting member or

participant may conclude a transaction by accepting the quote or

quotes provided to it on request.

Continuous auction order book A system that by means of an order book and a trading algorithm

operated without human intervention matches sell orders with

matching buy orders on the basis of the best available price on a

continuous basis.

Quote driven A system where transactions are concluded on the basis of firm

quotes that are continuously made available to participants, which

requires the market makers to maintain quotes in a size that

balances the needs of members and participants to deal in a

commercial size and the risk to which the market maker exposes

itself.

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Where information should be published?

Information should be published, in a machine-readable format, available for downloading by the public.

How frequently should information be published?

Reporting frequency Reporting reference dates Reporting period

Quarterly

31 March (Q1) 1 October-31 December

30 June (Q2) 1 January-31 March

30 September (Q3) 1 April-30 June

31 December (Q4) 1 July-30 September

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Transaction Reporting

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M i F I R R e p o r i n g R e q u i r e m e n t s

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Financial counterparties

Non-financial counterparties exceeding the clearing threshold as defined under EMIR 10(1)(b)

Investment managers providing advice and portfolio management on a client-to-client basis

Credit Institutions

Market operators/ Trading Venue

Central Counterparties

Third- country firms providing investment services or activities within the EU

Who needs to report?

The transmission of orders “exemptions” – RTS 22 Article 4

Discretionary investment managers can rely on their brokers ( assuming they are MiFID investment firms) to make the report on their behalf if a number of important conditions are

met. Conditions include:

1. The “transmitting firm” is only deemed to have successfully transmitted an order when it has sent certain specific details to the “receiving firm”, including the details of the

trade, the client or clients for whom the transaction has been made

2. Have a written transmission agreement in place with the receiving firm

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What to report?

3. Financial instruments where the underlying is an index or a basket composed of financial instruments traded on an EU trading venue. This means that just one

component of either index or basket will bring that financial instrument under the reporting obligation

2. Financial instruments where the underlying is a financial instruments traded on an EU trading venue

1. Financial instruments admitted to trading or traded on an EU trading venue or for which a request for admission to trading has been made

The only financial instruments that still fall outside MiFIR’s scope are:

Segregated collateral transfers in bilateral transactions

SFTs

Give-ups or give-ins

The issuance, allotment, subscription or exercise of pre-emption rights

The obligation shall apply to transactions in financial instruments referred

to above irrespective of whether or not such transactions are carried out

on an EU trading venue.

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Reportable Instruments

1. Equities – Shares and Depositary Receipt

2. Debt Instruments

Bonds

Money Market Instruments (e.g. T-Bill)

3. Interest Rate Derivatives

Futures and options admitted to trading on a TV

Swaps, forwards, FRAs and other

4. Credit Derivatives


Other

5. Currency Derivatives


Swaps, forwards, FRAs and other

6. Structured finance products (e.g. CDSs)

7. Equity Derivatives


Swaps and other

8. Securitised Derivatives

Warrants and Certificate Derivatives

Other

9. Commodities derivatives


Swaps, forwards and other

10. CFDs

11. Exchange Traded Products – ETFs, ETNs, ETCs

ETPs that track an index, commodity, bonds and other

12. Emission allowance

13. Units in collective investment undertakings

and Other

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Reportable and non-reportable transactions

1. Transfers of financial instruments between funds or portfolios are reportable as they constitute an acquisition and disposal from one fund/portfolio to the other

2. Transfer from an account held by a client to a joint account where the client is one of the joint holders is reportable

3. A custodian/ nominee decides to move financial instruments from one depository bank to another depository bank - there is no transaction reporting

obligation for the movement of the financial instruments since this activity has arisen solely as a result of custodial activity

4. A client transfers financial instruments to a custodian/nominee to hold in its custodial/ nominee account- there is no transaction reporting obligation for this

transfer as it is solely connected to custodial activity

5. Creation and redemption of a fund by the administrator of the fund is not reportable

6. Exercising a financial instrument such as an option, a covered warrant, a convertible or exchangeable bond, an allotment right or a subscription right by the

owner of the financial instrument does not trigger transaction reporting obligations for the investment firm exercising the option or the investment firm

being exercised against. Where the exercise results in the delivery of another financial instrument this is also not reportable by either the investment firm

exercising the option or by the investment firm being exercised/ assigned against.

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7. Acquisitions or disposals in connection with mergers, takeovers, insolvency proceedings, stock splits or reverse stock splits are not reportable.

8. The creation, expiration or redemption of a financial instrument as a result of pre-determined contractual terms, or as a result of mandatory events which are

beyond the control of the investor where no investment decision by the investor takes place at the point in time of the creation, expiration of the financial

instrument is not reportable.

The only exemptions are activities in relation to IPOs, secondary public offerings or placings of debt insurance, where these transactions are reportable.

e.g.: A new company launches an IPO, and therefore there are no allotment rights. Investment firm X applies for shares via IPO and receives those shares. A

request for admission to trading has been made although the shares have not yet started trading

The acquisition of the shares is reportable

The reporting obligation would also apply in case of a secondary public offer or placing, where there are no allotment rights

e.g.: Investment Firm X holds bonds in a company that have 5-year maturity. Under the terms of the issuance, the company has the right to redeem a portion of

the financial instruments prior to maturity. In Year 3, the company redeems a portion of the nominal value of the bond issuance. There is no obligation to report

in relation to the redemption of the bond. This is because it is the result of pre-determined contractual terms which are outside the control of the investor.

9. The issuance of script dividends are not reportable as this involves the creation of financial instruments as a result of pre-determined contractual terms where

no investment decision is made by the investor at the time of the instruments' creation.

10. Acquisition under a dividend reinvestment plan is not reportable.

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11. An exchange or tender offer on a bond or other form of securitised debt where the terms and conditions of the offer are pre-determined is not reportable.

e.g.: A company makes a tender offer to purchase back its bonds from investor at a premium. The conditions for the offer had already been published in an

information disclosure or prospectus

12. Securities Financing Transactions are not reportable

13. A holder of a financial instrument or convertible bond exercises a financial instrument or convertible bond. As a result of this exercise or conversion, investment

firm X (the party being exercised against) acquires or disposes of underlying financial instruments (e.g. on a trading venue) so that it can deliver these instruments

to the holder:

A transaction report shall be submitted in relation to the acquisition/disposal of the underlying financial instruments (e.g. the on-venue acquisition).

However, there is no transaction reporting obligation in relation to the transfer of those underlying financial instruments to the holder or in relation to the

exercising/conversion of the financial instrument.

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65 Reporting Fields for Transaction Reporting

General Fields

Report Status

Transaction Reference Number

Trading Venue Transaction Identification Code

Executing Entity Identification Code

Investment Firm Covered by Directive 2004/39/EC or Directive 2014/65/EU

Submitting Entity Identification Code

Buyer Identification Code

Country of the branch for the buyer

Buyer National Identification code

Buyer- First Name

Buyer- Surname

Buyer- Date of Birth

Buyer

Buyer Decision Maker Code

National Identification Code

Buyer Decision Maker- First Name

Buyer Decision Maker- Surname

Buyer Decision Maker- Date of Birth

Buyer Decision Maker

Trading Date Time

Trading Capacity

Quantity

Quantity Currency

Derivative Notional Increase/Decrease

Price

Price Currency

Transaction Details

Seller Identification Code

Country of the branch for the seller

Seller National Identification Code

Seller- First Name

Seller- Surname

Seller- Date of Birth

Seller

Seller Decision Maker Code

National Identification Code

Seller Decision Maker- First Name

Seller Decision Maker- Surname

Seller Decision Maker- Date of Birth

Seller Decision MakerTransmission of order indicator

Transmitting firm identification code for the buyer

Transmitting firm identification code for the seller

Transmission Details

Investment decision within firm

Country of the branch responsible for the person making the investment decision

Execution within firm

Country of the branch supervising the person responsible for the execution

Trader and Algorithms

Waiver Indicator

Short Selling Indicator

OTC post-trade Indicator

Commodity derivative Indicator

Securities Financing Transaction Indicator

Indicators

Instrument Identification Code

Instrument Full Name

Instrument Classification

Notional Currency 1

Notional Currency 2

Price Multiplier

Underlying Instrument Code

Underlying Index Name

Instrument Details

Term of the underlying Index

Option Type

Strike Price

Strike Price Currency

Option Exercise Style

Maturity Date

Expiry Date

Delivery Type

Net Amount

Venue

Country of the branch Membership

Up-front Payment

Up-front Payment Currency

Complex Trade Component ID

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Personal Data Required Information Examples

Where the buyer is a legal entity, the LEI code of the buyer shall be used.

Where the buyer is a non-legal entity, IDENTIFIER should be used:

The IDENTIFIER shall be assigned in accordance with priority levels depending on the country. The first priority is usually the national number. The second priority is usually CONCAT.

CONCAT is structed as below:

(a) First Name

(b) Surname

(c) Date of Birth

Buyer

Where the decision is made by an investment firm, this field shall be populated with the identity of the investment firm rather than the individual the individual making the investment decision.

Where the decision maker is a legal entity, the LEI code of the decision maker shall be used.

Where the buyer decision maker is a non-legal entity, IDENTIFIER should be used:

The IDENTIFIER shall be assigned in accordance with priority levels depending on the country. The first priority is usually the national number. The second priority is usually CONCAT.

Buyer Decision Maker

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Where to report?

Investment firm itself

Approved Reporting Mechanism (ARM)

Trading Venue

Transaction reports shall be made to NCAs by:In case one of the branches of the EU investment firm reports part or all of the

transactions of the investment firm, it will have to report the transactions to the

home competent authority of the investment firm and not to the host

competent authority of the branch.

In case an investment firm delegates it reporting to a trading venue

or an ARM, it means that this trading venue or this ARM will have to

report to home competent authority of the investment firm on

whose behalf it reports and not to the competent authority of the

Trading Venue or ARM submitting the transaction report

Exemptions:

Branch of a non-EEA firm has the obligation to report its

transactions.

(i) In case the non-EEA firm has only one branch within the

EEA, it will report to the host competent authority of that

branch

(ii) In case the non-EEA firm has branches in multiple

jurisdictions, it will choose one of the host competent

authorities of its branches and report all transactions to

the competent authority.

Home CA Vs Host CA

Home member state competent authority and the CA

from the host member state may deviate from the

general rule.

IFs are advised to contact their home CA to ask for

which member states such a deviation exists and

under what conditions transactions need to be sent to

the home CA and under which conditions they need to

be sent to the host CA.

TV reporting transactions executed on their platform by

members that are not investment firms

In this case, there is no home competent authority for the

investment firm, as there in no investment firm involved.

The trading venue will have to report the transaction to its

own competent authority.

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Final Check List

✓ Make sure you have a LEI

All reporting firms should identify themselves with a LEI. This means that a firm should make sure that it has acquired a

LEI for itself and validate that its counterparties also identify themselves with a LEI.

✓ Personal Data: Ensure you have the required protection controls in place

MiFIR requires that firms provide some personal data (first name, surname and date of birth, national identification

number) for the buyer, seller and the decision makers for both sides irrespective of their nationality. Firms should make

sure that they have the required protection controls and legal documents in place for the distribution of these data.

✓ Check your Data Collection Capability for the 65 fields

Different information required for reporting should be gathered from different sources. Make sure you know from which

source each information should be extracted.

✓ Familiarise yourself with the MiFID II glossary

MiFID II glossary can be found here

https://www.p9ft.com/knowledge-hub/mifid-ii-glossary/

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Trade Reporting

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If you are: The obligation is with:

Executing on a venue ( MTF, OTF, RM) Venue

Executing with an SI SI

Transacting off-venue other than your counterparty is

an SI

“Seller”

Cases where the obligation goes to the buy-side

Buy-side transacting off-venue and the counterparty

is not regulated in the EU ( e.g. the broker is not a

MiFIR firm)

Buy-side via an APA

Buy-side is the seller, transacting off-venue, and the

counterparty is regulated in the EU but it’s not and SI

Buy-side via an APA


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Trade Reporting

What to report?

As close to real time as technically possible and in any case:

For bonds, structured finance products, emission allowances and derivatives :

1. within 15 minutes after the execution of the relevant transaction from 3 January 2017 until 1 January

2020

2. within 5 minutes after the execution of the relevant transaction after 1 January 2020

Where to report?

How frequently to report?

Reporting includes:

Trading date and time

Price

Quantity

Venue of execution

Only through an authorised Approved Publication

Arrangement (APA)

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Financial Instrument Reference Data

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Financial Instrument Reference Data (RTS23)


• Trading Venues

• Systematic Internalisers

What to report?

Details on financial instruments

Where to report?

National Competent Authority.


• Shall be submitted before trading the financial instrument that it refers to commences.

• Shall be updated whenever there are changes to the data with respect to a financial instrument

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Commodities Position Reporting for

Investment Firms

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MiFID II Position Reporting for Investment Firms

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• Members and participants of trading venues (MTFs, OTFs and RMs) shall report their positions as well as the positions of their clients and

the positions of the clients of their clients and so on down to the end client.

• Investment firms which undertaking trading outside a trading venue (Economically Equivalent OTC contracts) shall report their positions

as well as the positions of their clients and the positions of the clients of their clients and so on down to the end client.

What is the definition of a “client”?

Any natural or legal person to whom an

investment firm provides investment or

ancillary services.

Determining the “client” and the “end client” under different cases:

1. Investment firms dealing on their own account will not have a “client” and so they shall report only their positions

2. If the client of an investment firm is not itself an investment firm, then the client must be the “end client”

3. If the client is an investment firm, but does not provide investment or ancillary services to another person, then

the investment firm is also the “end client”

4. If an investment firm enters into an Economically Equivalent OTC contract with another investment firm, neither

firm may be providing investment or ancillary services to the other and so this contract does not involve any client

5. If an investment firm has a trading counterparty which is not the firm’s client then the investment firm is not

required to report the positions of that counterparty

FCA consults the possibility of both trading

venues and investment firms to send

positions to NCA through third-party

technology providers.

https://www.p9ft.com/knowledge-hub/mifid-ii-glossary/#m

https://www.p9ft.com/knowledge-hub/mifid-ii-glossary/#o

https://www.p9ft.com/knowledge-hub/mifid-ii-glossary/#r

https://www.p9ft.com/knowledge-hub/mifid-ii-glossary/#a

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What to report?

Both listed and economically equivalent OTC contracts (EEOTC) across all maturities on:

Commodity derivatives Emission allowances Derivatives on emission allowances

What is an economically equivalent OTC contracts?

Based on RTS 21 Article 6, An OTC derivative shall be

considered economically equivalent to a commodity

derivative traded on a trading venue where it has

identical contractual specifications, terms and

conditions, excluding post trade risk management

arrangements, to those of that commodity derivative

traded on a trading venue.

Examples of a commodity derivative include but not limited to:

• Derivative contracts on energy products like electricity, natural gas or liquefied natural gas

• Securitised derivatives in one or more commodities

• Derivative contracts relating to indices if the underlying index is materially based on commodities. An underlying

index derivative is materially based on commodities if such commodities have a weighting of more than 50% in the

composition of the underlying index

• A commodity derivative contract in the legal form of a “spread” or “diff”. This is a cash-settled contract whose value

is determined by the difference between two reference commodities which may vary in type, grade, location, time

of delivery, or other features

• Derivative contracts where the derivative or the underlying derivative relate to climatic variables, freight rates,

inflation rates and others, can be settled in cash and are traded on a regulated market, OTF, or MTF

• Derivative contracts relating to commodities that must be settled in cash or may be settled in cash

• Derivative contract relating to commodities that can be physically settled provided that they are traded on a

regulated market, a MTF, or an OTF, except for wholesale energy products traded on an OTF that must be

physically settled

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Where to report?

• Members and participants of a RM, a MTF and clients of an OTF shall report to the trading venue. The latter must then provide the reports

to the NCA.

• Investment firms undertaking trading outside a trading shall report to the relevant NCA.

What is a “relevant NCA”?

The Competent Authority of the Trading Venue where the commodity derivatives or emission allowances or derivatives thereof are traded or the central competent

authority where the commodity derivatives or emission allowances or derivatives thereof are traded in significant volumes on trading venues in more than one

jurisdiction


Trading venues and investment firms should report their positions to the respective NCA by 22:00 CET on T+1.

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How P9 can help

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MiFIR and MiFID II Commodities Position Reporting Solution

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M i F I R R e p o r t i n g R e q u i r e m e n t s

Point Nine can help you with a fully automated solution by :

✓ Real-time connectivity to all market participants- our automated

solution is adjustable to our clients' internal and external data

sources

✓ Collecting of raw data

✓ Masking for personal data in case the customer wants the

personal data to be encrypted

✓ Eligibility of reportable data

✓ Heavy enrichment of raw data

✓ Calculation of positions

✓ Validations and matching of data before submission of the report

✓ Transaction and trade reporting automated solution

✓ Connectivity to National Competent Authorities, APAs and ARMs

✓ Acks/ Nacks processing and exception management

✓ End of day reports

✓ Full audit trail

Validations

Enrichment

Eligibility of reportable

instruments

Connectivity to NCAs, ARMs and APAs

Acks/ Nacks processing and exception management.

Transaction and Trade Reporting/ Commodities Position Reporting

Masking

the required

personal

data

Collecting

raw data

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“It is said that the devil is in the details, and this well-worn idiom is expected to prove true in the case of Market in Financial Instruments Directive II.”

Markets Media

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Get In Touch

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E [email protected]

+357 25 028 241

BSG Valentine, Lynton House

7-12 Tavistock Square, WC1H 9BQ

UK, London

135 Arch. Makarios III Ave., 1st floor, Emelle Building

3021, Limassol, Cyprus

Cyprus, Limassol

Belarus, Minsk

Sales Office

Head Office

R&D OfficeP

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