Part 1: Important Findings From Recent FCA Market Watches

2 November 2020

The FCA has released transaction report commentary in three separate publications of their Market Watch Newsletter (59, 62 and 65). We discuss these transaction reporting issues in more depth alongside approaches to resolution and remediation.

 


Reportable Transactions

In Market Watch 65, the FCA notes the obligation to produce a transaction report based on the definition of a “reportable transaction”, as it appears in Article 26(2) of MiFIR.

Market participants conducting retrospective diagnostics of their historic transaction reports have grappled with determining if an instrument was reportable at the time of the trade. The first step in determining reportability is to check the existence of the instrument’s ISIN in the FIRDS database. (FIRDS is an instrument reference data repository established by the European Securities and Markets Authority - ESMA.)

However, when market participants need to go back in time to the trading date, short-dated instruments may no longer appear in the FIRDS data files. This is due to the way FIRDS maintains the database. Terminated or expired instruments are removed from the weekly FIRDs full data files leaving no footprint of the existence of the instrument.

As the online FIRDS database only allows for individual ISIN checks, it is not viable to use this for large datasets. This leaves firms with the complex task of merging historic FIRDS data files to cover the periods of trading being investigated. As the FCA stresses, it is important that firms have arrangements in place for determining reportability at the time of the trade and when conducting retrospective health checks of their reporting.

Market participants, who do not keep an ongoing copy of the FIRDS database, are left piecing together instrument details using a combination of ANNA, FIRDS, and, potentially other Market Data Resources.

Qomply maintains a complete archive of ISINS appearing in the FIRDS database and can reach back in time to determine the reportability of a transaction at the time of the trade. Market participants are encouraged to contact Qomply for access to automated tools that easily return the reportability of a financial instrument.


Late Submission of Transactions

In Market Watch 65, the FCA notes that they “have also identified investment firms executing transactions in reportable financial instruments while not having the infrastructure in place to submit transaction reports no later than the close of the following working day. Such breaches should be notified to the FCA promptly using the errors and omissions notification form.”

Data suggests that by the end of 2018, there were upwards of 10pct of transactions being submitted later than the next working day. This figure has shrunk significantly now that firms’ processes have stabilised. Recent data suggest that 5pct of transactions are submitted late. This varies widely across firms and complexity of the instruments. Certainly, the high late submission figures of 2018 make sense as throughout the year, market participants bedded-in processes and tightened controls. The latest figures do indicate a trend towards timeliness.

Reasons for late submissions may be due to several factors, including, but not limited to:

1) Breakdown of systems and controls – whether operational or technical, leading to late submissions. In the case of automated processes, if a process is interrupted and restarted, trade submissions may not occur on time or may go unnoticed until after the deadline.

2) Operational teams investigating, correcting, and resubmitting transactions. Resubmissions may be done using in-house tools or tools supplied by the ARM. Depending upon the number of rejections, it may take time to investigate and resolve the rejections thereby resulting in late submissions.

3) Trades on 3rd country venues where information may not be readily accessible.

This leads nicely on to the next section Error and Omissions.


Errors and Omissions

The FCA continues to highlight that the Errors and Omissions notification must be completed for transactions submitted after the following working day. The FCA points out that firms are not notifying the FCA of the breaches by using the errors and omissions notification form.

Transversal departmental procedures should form part of the overall system and control framework thereby tightening the control framework around errors and omissions.

Since there is little written guidance as to a “material threshold” of transactions triggering the notification to the FCA, market participants should assume that every error or omission should be reported, whether individually or by groups at the end of the month/week depending upon volume.


Next Week...

Next week, we will discuss the "cancellations and corrections", the common CON-412 rejection error and FCA's repeated message on the responsibility of market participants to conduct healthchecks.

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