The “MiFID II/MiFIR & EMIR Reporting” conference last week in London was well attended by hardened reporting stalwarts, well used to moving technical mountains in order to deliver the billions of trade and transaction reports submitted by the industry every week. Normally, not much phases this crowd, but one regulatory revelation managed just that.
During a discussion of the MiFID II Approved Reporting Mechanism (“ARM”) plans, it began to dawn on the audience that the new definition of an ARM might cover a far larger scope than commonly understood and indeed far more than today’s MiFID regime includes.
Let’s ease into this one. An ARM is an entity authorised to provide services to an investment firm in order for it to meet its obligations under Article 26 of the markets in financial instruments regulation. In practice, this mean the likes of Univista, Abide, Trax and others offer services to take a firm’s data and send it to the national competent authorities in the form of a transaction report.
As highlighted at the conference, “the existence of ARMs is intrinsically related to the submission of transaction reports and therefore the connectivity – which is made clear in the CP – is intrinsic to the authorization process”. In other words, an ARM cannot be authorised until it connects and proves that ability to connect.
Once authorised, an ARM must operate and preserve effective administrative arrangements designed to prevent potential conflicts of interest with its clients. An ARM which is also a market operator or investment firm shall ensure that information is collected in a non-discriminatory manner and shall operate and maintain appropriate arrangements to separate different business functions.
Got it? Ok, now here’s the catch. If you provide third party services that are “touching the data, creating reports, slicing and dicing the data”, you could be seen to be providing a data service and, thus, be implicitly required to register as an ARM. This could mean that, if you are offering software and database services to help pull together the reporting, you should register and be subject to all the regulatory controls. The market would then need to sort out that additional cost/risk equation.
However, perhaps more worryingly, this might mean that, if a firm which is part of a group has established an internal function to collect data from all of the trading systems in its group and then consolidate and clean the data, they might also be caught under the new ARM regime.
We asked whether there was any clarity yet about whether trading venues reporting for non-MiFID firms need to be authorised as an ARM. Sadly, no answer was forthcoming.
Regardless of where this debate goes, it’s clear that, when compared to MiFID I, this a big change and more firms will fall within the broader scope of MiFID II. Keep an eye on the ESMA and FCA websites for any updates!