RegTech Intelligence

Key takeaways from the latest transaction reporting debate

JWG analysis.

On 7 July, market experts at the City & Financial Global workshop on transaction reporting under MiFID II addressed an audience, setting out their main concerns regarding the new transaction reporting regime.  In this article, we present some of the key issues that they highlighted.

The European Securities and Markets Authority (ESMA) have stated that there will be an increase in the scope of transaction reporting under MiFID II.  In addition, the number of fields in a transaction report has risen to 81, which is over three times greater than the 24 required under MiFID I, and ESMA themselves admitted that 80-85% of the MiFID I fields have “changed radically”.

Many financial institutions may well be looking into enhancing their current systems and procedures.  However, this has been hindered due to the number of questions still surrounding the extension of the scope.  In particular, market participants are unclear about which additional instruments will fall under the new transaction reporting regime.

Industry experts recommended that firms should now start assessing the implications of the transaction reporting, if they have not already.  Although there are still many grey areas, the experts suggested that firms could begin by looking at how equities, equity derivatives and bonds are reported today under MiFID I and EMIR.  Firms would then be able to undertake a gap analysis to assess whether or not their systems would be able to cope with the additional requirements of MiFID II.  In practice, industry experts advised undertaking an iterative process when attempting build systems, fleshing out systems when more information has come to light.

Although infrastructures may not have to be rebuilt from scratch, as firms could try to leverage what is already in the market, current reporting systems are unlikely to be fit for purpose under MiFID II.  In light of new requirements, such as time stamps and trader IDs, firms may find it more beneficial to assess what further information needs to be gathered and what can be re-used when building their new reporting systems.

The question of standard formatting and quality of transaction reports being sent to Approved Reporting Mechanisms (ARMs) was also addressed.  Some expressed that reports should be completed in a standard form to be passed on to ARMs.  This would enable familiarity and easy transference further down the line if necessary.  Additionally, it was indicated that such standards would enable greater clarity within in the industry as to what the requirements actually are.  With regards to data quality, the experts stressed that validation standards would be as strong as they could be from the start.

Overall, it was agreed that ESMA needs to be more prescriptive over what they want, to avoid another situation similar to trade reporting under EMIR.  The bottom line is that firms should start assessing their transaction reporting situation now, ensuring that reconciliation, governance and testing are all ready to go live.  A failure to start before 2016, would mean missing the 3 January 2017 deadline.

JWG’s Customer Data Management Group (CDMG) workshops have been actively delving into the ‘known unknowns’ every month.  Our next meeting on 21 July will be looking into transaction reporting under MiFID II.  To follow the full MiFID II debate, join our LinkedIn Group.


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