Market Watch 74

The Financial Conduct Authority (FCA) has published a new edition of its Market Watch (No. 74). This latest version primarily deals with the findings from the FCA’s recent review of firms‘ transaction reports in accordance with Retained Commission Delegated Regulation (EU) 2017/590 (RTS 22), and „the submission of financial instrument reference data“ under Retained DelReg (EU) 2017/585 (RTS 23). The FCA thereby highlights the continued importance of transaction reports for effective market oversight and notes that – while data quality has improved since 2018 – some firms still seem to neglect the necessity of accurate and timely reporting. The KEY findings are briefly summarized below; for more detailed information, please refer to the Market Watch itself.
#### Transaction reporting
(1) Transaction Reporting Reconciliations and Breach Notifications: The review shows an increase in firms making data extract requests, but also indicates that some firms are not aware of the Market Data Processor (MDP) Entity Portal at all which allows users to submit and access market data, e.g. for reconciliation purposes. Breach notifications, on the other hand, have declined in numbers in recent years. In this context, the FCA notes that firms shall consider validation rule 269 when submitting breach notifications and resubmitting corrected transaction data reports. According to this validation rule, transaction reports submitted after 5 years from the trade date are rejected. Notifications about errors and omissions should include information about when the problem initially happened and the number of affected reports, even if it’s beyond 5 years. Firms are not required to cancel reports with a trade date over 5 years from the submission date.
(2) Identification of Investment and Execution Decision Makers: The regulatory requirements outlined in Article 8(2) and Article 9(4) of RTS 22 emphasize the need for firms to establish clear criteria for determining who holds primary responsibility for investment and execution decisions. This includes identifying and specifying individuals or algorithms responsible for specific decisions. The intention behind this requirement is to enhance transparency and accountability within the investment process, which is essential for proper market monitoring and regulatory compliance.
The review found that some firms are assigning primary responsibility to senior management who oversee investment and execution decisions, but might not be directly involved in making decisions at a transaction level. This raises concerns whether such senior managers can truly be considered primarily responsible for specific decisions, given their limited direct involvement and whether assigning primary responsibility to individuals with limited transaction-level involvement aligns with the spirit of the regulatory framework. Therefore, firms should carefully consider this issue and determine appropriate criteria for assigning primary responsibility for investment and execution decisions. The decision-making process should also be well-documented, transparent, and aligned with regulatory expectations.
(3) Transmission Agreements: Under specific conditions in accordance with Article 26(4) of UK MiFIR and Article 4(1)(c) of RTS 22, transmitting firms are relieved of submitting transaction reports if the receiving firm provides the required information. One such condition is that the receiving firm and the transmitting firm have a corresponding agreement. However, the FCA has observed instances where investment firms claimed to be exempt from transaction reporting requirements, despite the fact that no such agreement was in place. As a consequence, the FCA urges all transmitting and receiving firms to ensure compliance with the RTS 22 Article 4 conditions and maintain evidence of such agreements.
(4) Inconsistent Price and Quantity Notations or Missing or Wrong Instrument Data: The FCA found that in some cases there are inconsistencies in the reported notations for price and quantity fields among investment firms. These inconsistencies pertain to situations where no specific price or quantity type is mandated for a traded instrument, allowing firms to select appropriate notations. The FCA recommends that firms adhere to established market conventions when making such notation decisions and that they should strive for consistency in their chosen notations, aligning them, when feasible, with those used by their trading counterparts.
Similar issues have been observed where instrument details must be provided in the reports (fields 42-56). Incorrect price multipliers in contracts for differences, incorrect or missing expiry dates, or discrepancies between the Classification of Financial Instrument (CFI) codes and instrument names or other instrument details are only some of the issues that the FCA has observed. Therefore, the FCA reminds firms that it is crucial to ensure the completeness and accuracy of these fields, as they play a pivotal role in identifying the nature and attributes of the traded instrument.
#### Instrument reference data reporting
According to Article 2 of Regulatory Technical Standard (RTS) 23, trading venues and Systematic Internalisers (SIs) are required to provide the FCA with instrument reference data by 21:00 CET on each trading day for all financial instruments traded on their platforms before 18:00 CET that day. However, some of these trading venues and SIs are failing to meet this deadline, so the observations of the FCA. This delay in data submission has negative implications for investment firms, as it hampers their ability to report transactions executed on these trading venues or with SIs accurately. Late reporting by trading venues can also hinder investment firms from accurately assessing whether a financial instrument is reportable. It is expected that trading venues and SIs have robust systems and controls in place to identify instances of late reporting. In cases where late reporting is identified, they should promptly send notifications regarding errors and omissions in instrument reference data to the following mail address: mrt@fca.org.uk.
Furthermore, the FCA notes that Spot FX instruments are NOT considered financial instruments for purposes of MiFID and thus, instrument reference data shall not be submitted to the regulator. However, if such instruments have been reported, a corresponding cancellation notification must be sent to the Authority to enable the FCA to adjust its data showing in the Financial Instrument Reference Data System (FCA FIRDS) accordingly.