Mon, Nov 16, 2015

MiFIR transaction reporting for US and Asian firms: what is coming?

The relevance of MiFIR for US and Asian firms

Under MiFIR, investment firms are required to transaction report. US and Asian investment firms operating within the EEA or branches of EEA investment firms located in the US and Asian making transactions in a reportable financial instrument are caught under the scope of MiFIR.

The importance of being compliant

Transaction reporting failures by firms have been heavily penalized by regulatory authorities in the last 5 years, which underscores the importance of being able to report transactions accurately and completely.

In the UK, FCA imposed a £4.7m fine on Deutsche Bank in 2014 for failing to properly report over 29 million equity swap contracts-for-difference transactions and earlier this year, Merrill Lynch International was fined £13.2m for a number of transaction reporting failures. Non-compliance with transaction reporting requirements and a lack of governance, systems and controls to mitigate transaction reporting failures will continue to be scrutinized by regulatory authorities under MiFIR and action taken against firms who willfully neglect their responsibilities.

The main changes ahead

The MiFIR transaction reporting regime increases the scope and complexity of the existing MiFID I transaction reporting regime. The scope of MiFIR will be extended to include all financial instruments admitted to trading or traded on a Regulated Market, Multilateral Trading Facility (MTF) or an Organized Trading Facility (OTF).

MiFIR will also require investment firms to report FX, commodity and interest rate derivative transactions, in addition to the already reportable financial instruments under the MiFID I regime.

Last but not least, a large number of North American and Asian instruments traded on MTFs, will become reportable. In terms of reportable fields, MiFIR increases the number of fields to 65 (whilst MiFID I only required up to 24 fields to be completed). Some of these additional fields relate to new requirements (i.e. short selling flags) whilst others relate to additional details of existing reportable fields (i.e. investment decision maker, details of any algorithms involved, etc.).

In order to accurately report transactions under the MiFIR regime, investment firms, including US and Asian investment firms operating in the EEA or EEA branches located in the US and Asia, will need to, at a minimum, have in place the following, but not limited to:

Legal Entity Identifiers (LEIs)
  • Reporting investment firms, including all entities, will need to have a LEI.
  • Reporting investment firms will need to ensure that their counterparties have a LEI.


Personal data requirements and protection
  • Reporting investment firms will need to ensure that they capture data including first name, surname and date of birth of individuals involved in the transaction (for beneficiaries, executing traders and decision-makers).
  • Reporting investment firms will need to ensure that they have an appropriate data protection framework in place, given the sensitivity of this data.


Instrument reference data
  • Reporting investment firms will need to understand what financial instruments are in scope.
  • Reporting investment firms will need to ensure that the appropriate reference data is associated with these financial instruments.


Regulatory reporting arrangements
  • Reporting investment firms will need to determine the easiest and most secure manner for reporting their transactions to the relevant regulatory authorities. Reporting investment firms will be able to centralize their reporting onto an Approved Reporting Mechanism (ARM) to capture their EEA transactions.

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