Ireland: MiFID II Transaction Reporting

Last Updated: 19 October 2017
Article by Dillon Eustace

Introduction

The three main reasons for requiring that details of transactions in financial instruments be reported to competent authorities are that transaction reporting enables the competent authorities:

  • to detect and investigate potential cases of market abuse
  • to monitor the fair and orderly functioning of markets, and
  • to monitor the activities of investment firms.

These may not give much comfort to those subject to the onerous reporting obligation, but they do give context to the regime described in this paper and to the requirement to not only identify the person responsible for execution of the transaction but also the person who made the investment decision.

What is the transaction reporting obligation?

The basic reporting obligation under Regulation (EU) No. 600 / 2014 of the European Parliament and of the Council of 15 May 2014 ("MiFIR") is that investment firms which execute transactions in financial instruments must report complete and accurate details of transactions to their home competent authority as quickly as possible, and no later than the close of the following working day.

In scope are transactions in financial instruments which are traded on a trading venue; and transactions in financial instruments where the underlying is a financial instrument traded on a trading venue or where the underlying is an index or basket composed of financial instruments traded on a trading venue.

Who do the rules apply to?

The transaction reporting obligation rules apply to:

  1. investment firms (as defined in Article 4(1)(1) of MiFID II); and
  2. credit institutions when providing investment services and / or performing investment activities; and
  3. market operators including any trading venues they operate;

(each a "firm")

Interestingly, they do not apply to UCITS ManCos or to AIFMs, even where they have extended their authorisations to include individual portfolio management. We understand that certain jurisdictions have, however, extended the transaction reporting obligation to those extended authorisation UCITS ManCos

and AIFMs.

Where can I find the rules?

The transaction reporting rules are found in Article 26 of MiFIR and in Commission Delegated Regulation (EU) 2017/590 of 28 July 2016 supplementing MiFIR with regard to regulatory technical standards for the reporting of transactions to competent authorities ("RTS 22").

Article 26 of MiFIR imposes the reporting obligations, whereas the aim of RTS 22 is, amongst other things, to:

  • explain what is meant by a "transaction";
  • create consistency in the standards and formats used when reporting transactions;
  • clarify which firms must report and in that context, in particular, what is meant by "executing" a transaction and what is "transmission";
  • set down rules designed to avoid non-reporting or double reporting and rules relating to legal entity identifiers; and
  • set down rules as to identification of persons or computer algorithms which make investment decisions (for market abuse purposes).

ESMA Guidelines

In addition to MiFIR and RTS 22, the European Securities and Markets Authority ("ESMA") has issued very detailed Guidelines on transaction reporting, order record keeping and clock synchronisation under MiFID II (the "ESMA Guidelines") which apply, with effect from 3 January, 2018, to investment firms, trading venues, approved reporting mechanisms ("ARMs") and competent authorities.

The section of the ESMA Guidelines on transaction reporting is split into four parts:

Part I – General principles. This part describes the general principles to apply to transaction reporting. It covers how to construct a transaction report, and in what circumstances and where to send the report. It provides high level approaches to reporting and further guidance on certain exclusions from the meaning of transaction as specified in Article 2(5) of RTS 22.

Part II - Blocks. This part covers blocks (collection of fields), where each block addresses the relevant fields for a particular topic, with accompanying examples of how to populate these. The blocks are structured to be independent of each other.

Part III - Scenarios. This part provides examples based on different trading scenarios that a reporting party might experience. In particular, transactions resulting from transmissions of orders, grouped orders and the provision of Direct Electronic Access ("DEA") are presented.

Part IV - Instruments. This part focuses on reporting guidance for various financial instruments. Most examples are focused on derivatives given that these financial instruments have a more complex reporting pattern.

The ESMA Guidelines are extremely detailed, addressing in a very practical way most reporting scenarios that one can envisage.

Central Bank Publications

The Central Bank of Ireland ("Central Bank") has issued several transaction reporting documents including, but not limited to:

  • Test Online Reporting System – MiFIR Transaction Reporting User Procedure Document (Draft) [27 September 2017]
  • Transaction Reporting under Regulation 600/2014 ('MiFIR') – Operational and Technical Arrangements [26 September 2017]
  • Letter to Industry re MiFIR Transaction Reporting – Testing Arrangements [23 June 2017]

The Central Bank has also issued several other communications on the MiFIR transaction reporting topic. It expects that firms will by now :

  • have assessed, and understand, the impact that MiFIR has on their transaction reporting processes and procedures;
  • be fully informed of their obligations; and
  • have made key decisions with regards to meeting their obligations (e.g. using the services of an Approved Reporting Mechanism.

Timing

The new reporting obligations apply from 3 January, 2018 and are expected to involve significant costs (IT, process enhancement, training costs, legal costs) for firms. The current MiFID rules apply up until that date.

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