MiFID II Reporting – Explained

Broadens the scope of transaction reporting to capture:

Financial instruments admitted to trading or traded on an EU trading venue, or for which a request for admission has been made.
Includes Multilateral Trading Facilities (MTF) and Organised Trading Facilities (OTF), as well as regulated markets.
Financial instruments where the underlying instrument is traded on a trading venue.
Financial instruments where the underlying is an index or a basket composed of instruments traded on a trading venue.

Definition of “Transaction” under Regulatory Technical Standards

Covered Transactions

Acquisition, disposal, or modification of a reportable financial instrument, including but not limited to:
- Purchase or sale (current MiFID I definition).
- Simultaneous acquisition and disposal where there is an obligation to publish post-trade, even if there is no change of ownership (e.g., exercising options).
- Entering into or closing out of derivatives.

Exclusions from “Transaction” Definition

Securities financial transactions (e.g., stock lending, repurchase agreements).
Post-trade assignments and novations in derivatives.
Portfolio compressions.
Creation or redemption of units of a collective investment undertaking by the administrator.
Creation, expiration, or redemption of instruments resulting from pre-determined contractual terms or mandatory events where no investment decision is occurring.
Change in the composition of an index after the execution of a transaction.

MiFID II reports are likely to have some overlap with other European regulations such as the Market Abuse Regulation (MAR), the regulation on Securities Financing Transactions (SFTR), the Regulation on Wholesale Energy Markets Integrity and Transparency (REMIT) and EMIR. So it makes sense when considering what reporting technology to use for MiFID II whether your chosen system can also generate reports for these other regulations.

Firms are also likely to be aggregating source data from different locations and different systems. A technological reporting system needs to be capable of integrating and consolidating data from multiple sources into one report – quickly and accurately. It must be agile, so that it can be adapted to any new reporting requirements – and with MiFID II this is quite likely once it has rolled out next January and the regulators start to tweak it.

Transparency lies at the heart of MiFID II. Any quality platform for reporting should offer mechanisms for comprehensive audit trails. For data consistency across different reporting periods, firms need to be able to compare versions and changes to each item of data and each filing, and able to retrieve prior entries where needed.

MiFID II Reporting Timeline Explained

2007: MiFID I in Force

The original Markets in Financial Instruments Directive (MiFID I) is implemented, setting rules for financial markets in the EU.

2011: Proposal for MiFID II

The European Commission proposes an update to MiFID I, known as MiFID II, to address issues and improve market transparency and investor protection.

2014-2015: ESMA Consultations

The European Securities and Markets Authority (ESMA) consults with stakeholders on how to implement MiFID II, gathering feedback and refining the regulations.

2016: Application Delay Confirmed

The implementation of MiFID II is delayed to ensure that all member states and market participants are adequately prepared for the new regulations.

3 July 2017: Deadline for National Law Incorporation

EU Member States must incorporate MiFID II into their national laws by this date, ensuring that the updated rules are legally binding across the EU.

3 January 2018: MiFID II and MiFIR Apply

MiFID II and the accompanying Markets in Financial Instruments Regulation (MiFIR) come into full effect, introducing new requirements for financial markets, increasing transparency, and enhancing investor protection.

Mifid ii Technical Data Reporting Requirements

Increase in Data Fields

The number of data fields in reports increases significantly from 23 fields under MiFID I to 65 fields under MiFID II.
Only 13 of the original 23 fields remain unchanged.

Client Identification Requirements

MiFID I: It was sufficient to name the investment management firm responsible for initiating the transaction in the “client” field.
MiFID II: Each client (fund, account, or natural person) must be identified in a standardized format.
- For funds and managed accounts, this requires a valid Legal Entity Identifier (LEI) code.

New Identification Requirements

Decision Originator: The individual or entity making the decision to trade must be identified. This includes:
- Natural Person: The person making the decision to acquire or dispose of a reportable financial instrument or modify an existing contract (e.g., the portfolio manager).
- Committee: A committee making such a decision must use a unique identifying code with the prefix “COM”. Firms must keep records of the committee’s composition and provide these to the FCA on request.
- Algorithm: An algorithm making a decision to trade must be unique and exclusive to each trading strategy. Algorithms actually executing a transaction must also be uniquely identified.

Technology for MiFID II Reporting

With the final compliance date for MiFID II and MiFIR looming fast, for 3 January 2018, no firm should be delaying getting its reporting systems into placed ahead of that deadline.

MiFID II greatly extends what you need to report on, as it now covers almost all financial instruments. Here’s a quick overview of what firms must report and when:

Weekly aggregate reports – aggregated breakdowns of positions for different trades
Daily position reports – these must detail all persons’ positions on a trading venue
Daily participant reports – persons trading on a UK trading venue must compile a daily report on their own positions, plus their clients’ and clients of clients’ positions
Daily OTC reports – UK firms trading outside a trading venue must report their own positions, plus their clients’ and clients of clients’ positions

Key information within these reports includes matters such as the date of the trading day, the date and time the report is submitted, whether the report is new, amended or cancelled, the reporter’s unique identifier reference number and the e-mail address of the position holder.

Bear in mind that as well as these detailed reports, firms must also comply with data protection laws. The new General Data Protection Regulation (GDPR) comes into force on 25 May 2018 and places a bigger burden on companies than the existing regulations.

Your chosen reporting system needs to be secure, with administrators being able to control access. You should also look for a platform that can be scaled automatically and that has inbuilt disaster recovery.

DataTracks’ technological solution for clear efficient reporting is mifid reporting-compliant and uses an XML interface that looks like a spreadsheet and makes it easy to input data either by exporting and importing, or by manual entry. Reviewing and commenting on entries is also simple. It is hosted on a private cloud, so is totally secure, and offers all the above capabilities so that your firm can be confident it is managing all its data in the manner that MiFID II requires.

Lastly, one of the new transparency requirements is for firms to record telephone calls, whether by an employee directly involved in trading or someone providing advice that could lead to a client entering a trade. The FCA is not yet clear on what sort of call volume a firm should be monitoring, although the figure of 20% has been mooted. Firms should be looking to invest in cloud-based technologies that make it easy to record and store calls.