ESMA has published their MiFID II Final Report as a result of their Consultation Paper. It consists of updates and changes to the 289 page ‘Guidelines’ which provides the industry with, amongst other things, examples and details on how to populate transaction reporting fields in certain circumstances, and a 32 page ‘Final Report’ which summarizes the resultant changes, updates and additions and includes explanations as to why industry feedback was or was not included.
Below are Risk Focus’ 5 Key Takeaways
1) Reconciliation of Data
ESMA confirms there is no need to reconcile data between investment firms like in EMIR:
“ESMA confirms that, although National Competent Authorities expect reporting firms to provide the same information on relevant transaction details, there is no explicit requirement to reconcile data like in EMIR”
2) Identification and Validation
- ESMA clarifies that although the buyer or seller are identified in the reports, the information regarding the person who took the investment decision is of utmost importance for monitoring market abuse activities.
- ESMA has relaxed parts that require investment firms to verify names based on passports or any other official identification document to allow for more flexibility on how to verify the information, including removing the requirement to monitor expiry dates of an identifier, as well as clarifying that the client to be identified in the transaction report is always the immediate client facing the member of the trading venue, which will partially answer industry concerns about revealing Personally Identifiable Information (PII).
3) Reportability (several takeaways lumped into one here)
The following need to be reported:
- Corporate actions
- Change in ownership
- Exclusions from reporting are further elaborated
- Collective investment undertaking executions that were carried out at the NAV price (Respondents had’ requested to exclude these as no market abuse was possible).
- Increases and decreases of notional following novations, unless they fall under some other exclusion.
- Instruments traded on a platform outside of the EU if it is either a valid MIFID II instrument or its underlying is.
NOTE THAT Transfers of collateral are explicitly excluded
4) How To Get Your Cancellation Report Rejected
Cancellation reports with more fields than the key fields (1,2,4 & 6) will be rejected.
5) LOTS OF Details Regarding Population of Specific Fields
Highlights are as follows:
- Further clarification was provided around when the instrument Details (fields 42-56) do and don’t need to be populated.
- Field 61 shall now to only be populated for transactions executed on a trading venue and that it shall be populated only by the investment firm that has submitted the order to the Trading Venue or made a report of the trade to the Trading Venue.
- One of the validation rules for Field 63 has been deleted since it would have resulted in transaction reports for transactions on an SI being rejected if the OTC post-trade indicator was populated. Relevant OTC post-trade indicators should be populated for transactions with an SI
- ESMA is maintaining its position that ‘INTC’ should not be used for aggregate client account for cases of multiple executions for a single client again referring to the need to have this information to monitor market abuse.
- Amendments have been made to how to populate Field 57 – Investment decision within the firm