Opportunities in combining MiFID II and EMIR Transaction reporting
Transaction reporting is a challenging and cumbersome activity. The importance of having accurate and timely reporting of transactions is paramount to financial regulators in performing effective surveillance for insider trading and market manipulation. The Financial Conduct Authority (FCA) has recently fined numerous banks for inaccurately reporting transactions, with faults mainly due to poor reporting process, or wrong fields and flags submitted. Reporting some transaction data is not enough – it has to be absolutely correct to be deemed satisfactory and thus compliant.
Transaction reporting is one the key requirements of the Markets in Financial Instruments Directive (MiFID). Firms can either report transactions themselves, rely on the trading venue to report on their behalf where transactions are exchange-traded or choose to report via an Approved Reporting Mechanism (ARM).
Recently, in terms of reporting tools, firms have increasingly looked towards ARMs, especially because some of MiFID’s reporting requirements overlap with existing EMIR rules.
As such, using an ARM to report transaction data acts as an extra safety net to verify that the information submitted is accurate, thus ensuring compliance of the firm. ARMs can also be used to avoid duplication and double reporting with overlapping EMIR requirements. MiFIR allows existing EMIR Trade Repositories to seek authorisation to report MiFID transaction data and, therefore, become ARMs. This is made possible if authorised Trade Repositories (TRs) transmit required information to the national regulator within the MiFID II timeframe.
For commodity traders, the Regulation on Energy Market Integrity and Transparency (REMIT) also requires market participants to provide the Agency for Cooperation of Energy Regulators (ACER) with transaction data. The European Commission adopted the relevant acts to inforce Article 8 on Data Collection in December 2014. Furthermore, ACER already consents that information already reported in compliance with MiFIR or EMIR can be reported to them via the TRs, the ARMs, the competent authorities under MiFIR, or directly to ESMA. REMIT’s draft implementation act states that where transactions have been suitably reported for MiFIR or EMIR, their REMIT obligation on transaction reporting is deemed fulfilled. It, therefore, doesn’t have to be reported to one of REMIT’s Registered Reporting Mechanisms.
For the purpose of MiFID reporting in the UK, the FCA has already approved six ARMs in London: Credit Suisse Securities, Euroclear, TRAX, London Stock Exchange (UnaVista), Getco Europe Limited, Abide Financial Limited and Bloomberg Finance. It is expected that many TRs will start seeking authorisation to be registered as ARMs. Two of them (UnaVista and Abide) have already seized the opportunity to support their clients across both regulations.
Therefore, having a relationship with a TR that also provides ARM services would be an opportunity to cover all ESMA reporting requirements in one compliance effort.
In terms of overall strategy, firms falling under the obligations will need to get transaction reporting in EMIR to a good place, before thinking about MiFID II. Firms should leverage any existing EMIR remediation work they have gone through before they start building their MiFID II transaction reporting framework. To get transaction reporting right, firms will need to invest considerable amounts in a strategic data reconciliation exercise or face large fines.