Transaction Reporting
Tyler Woollard
Tyler Woollard

Compliance Consultant

Transaction reporting

On 18 October 2019, the Financial Conduct Authority (FCA) has published Market Watch issue 62. This issue covers personal account dealing and transaction reporting.

Transaction reporting

In Market Watch 59, the FCA highlighted common errors observed in transaction reports. The FCA’s ongoing monitoring of transaction reports and engagement with firms has identified further data quality issues.

Reporting transaction prices: while many firms have taken steps to ensure that Field 33 (price) in Commission Delegated Regulation (EU) 2017/590 (RTS 22) is reported correctly in the major currency (eg pounds), the FCA has identified errors in other price-related fields. For example:

  • Field 34 (price currency) is reported inconsistently with the currency in which Field 33 (price) is expressed
  • Field 46 (price multiplier) is reported inconsistently with the values provided in Field 30 (quantity) and Field 33 (price), or populated with a value that is not an accurate representation of the number of units of the underlying instrument represented by a single derivative contract

These inaccuracies can lead to a misleading representation of the transaction, limiting the FCA’s ability to carry out effective surveillance for market abuse.

Unique national identifiers: The FCA continues to see inaccurate reporting of national identifiers. This includes where a 2nd or 3rd priority identifier (as defined by RTS 22 Annex II) is used to identify a natural person where a 1st priority identifier is available. The FCA also sees firms reporting default identifiers and using the same default value to identify multiple individuals.

These observations were not limited to the identification of clients, but included persons responsible for the investment decision within a firm (Field 57) and persons responsible for the execution within a firm (Field 59).

Buyer and seller decision makers: Field 12 (buyer decision maker) and Field 21 (seller decision maker) only apply where:

  • the client is the buyer or seller and the investment decision is made under a discretionary mandate, or
  • the buyer or seller has granted a power of representation

The FCA has identified firms misreporting these fields by mirroring the contents of the buyer and seller fields. Other firms fail to populate the decision-maker fields where it would generally be expected; for example, where an asset management firm is acting under a discretionary mandate on behalf of a fund and identifies the fund as the buyer or seller. The FCA has also noted investment firms identifying a fund as the buyer or seller where transmission is not taking place (within the definition of RTS 22 Article 4) and the FCA would instead expect to see the fund management firm identified.

Executing entity identification code: the FCA’s monitoring for transaction report data quality includes surveillance for transaction reports that have not been submitted. In Market Watch 59, the FCA highlighted that some market participants had incorrectly populated Field 4 (executing entity) with the LEI of the broker they forwarded an order to, instead of their own LEI. As a result, the FCA was unable to identify transaction reports from those market participants.

The FCA continues to see firms failing to populate Field 4 (executing entity) with their own LEI where they are executing a transaction within the meaning of RTS 22 Article 3. Some firms have incorrectly reported this in Field 6 (submitting entity). Where the transaction report is submitted by an approved reporting mechanism (ARM), Field 6 (submitting entity) must be populated with the LEI of the ARM.

Misuse of the aggregate client account: the aggregate client account (INTC) is a convention used in transaction reporting to provide a link between the market side and client side of a transaction. The FCA has identified firms misusing the aggregate client account by using the INTC convention to report order(s) for one client executed in multiple fills. Other firms have reported flows in and out of the aggregate client account that do not net off on the same business day. The aggregate client account should not be used for any other purpose than set out in the applicable guidelines.

Indicator fields: firms have misreported Fields 61, 62, 63 and 64 with potentially default values. Examples include Field 62 (short selling indicator) being universally reported ‘UNDI’ (information not available), and Field 64 (commodity derivative indicator) being populated ‘false’ for transactions executed in financial instruments that are not commodity derivatives. Field 64 should be left blank in this scenario. The indicator fields should be populated in accordance with the requirements in RTS 22.

Methods and arrangements for reporting transactions: in Market Watch 59 the FCA highlighted the requirement in RTS 22 Article 15(2) for firms to notify it promptly when they identify any error or omission in a transaction report. The FCA also highlighted that firms must conduct regular reconciliations of front office trading records with data samples provided by the FCA (RTS 22 Article 15(3)).

Many firms have made positive steps to comply with these requirements. But some continue to rely on data samples provided by their ARM for their transaction report reconciliations. Other firms choose to delay notifying the FCA when they identify errors and omissions, or do not think they need to where transaction reporting is outsourced to a third party. This is not consistent with the FCA’s expectations or the requirements in RTS 22.

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