MIFID II Transaction Reporting “Data Management and Data Protection Challenges”

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On 29 September 2015, the European Securities and Markets Authority (ESMA) submitted to the European Commission a package of final regulatory and implementing technical standards regarding Directive 2014/65/EU (MiFID II) and Regulation (EU) No. 600/2014 (MiFIR).

The ESMA submission included a number of changes to the previously advised MiFID II transaction reporting requirements.

MIFID II transaction reporting aims to improve market abuse surveillance and to monitor market integrity.

This new reporting regime will challenge the IT departments of many investment firms due to the additional amount and sensitive nature of information to be included in transaction reports.

Additional Data to be Reported

The number of reportable data elements per transaction has increased from 23 to 65 as a result of the following:

  • The need to disclose the identities of each and every client involved in the transaction together with the persons responsible for the investment decision and the execution of the transaction.
  • Additional information is included in the transaction report to support the increased scope of transaction types and financial instruments to be reported upon.

Know Your Client Reference Data

Investment firms will need to record newly mandated unique identifiers for all the above entities involved in the transaction together with the identity of the investment firm who received the client order and the firm submitting the transaction report.

  • Legal Entity Identifiers (LEI) will be required to be recorded for any party involved in a transaction that is not a natural person. This includes Clients (if not a natural person), Submitting Entities (e.g. Authorised Reporting Mechanism), Transmitting Firms and Receiving Firms.
  • Natural person identifiers are required for all natural persons involved in a transaction — clients, decision makers and the person who executed the trade.

Financial Instruments Reference Data

The new reporting regime also mandates the reporting of not only the financial instrument involved in the transaction, but also the reporting of each underlying instrument.

The use of an ISIN number to identify a financial instrument will reduce the number of reportable fields that firms will need to populate on transaction reports.

Collating Complete and Accurate Reporting Information

The firm that receives the client order has an obligation to ensure that complete and accurate information is available to the firm submitting the transaction report.

Buy-side firms will need to ensure that they have IT solutions in place to collect, collate, validate and make available the necessary reportable data items from their KYC, financial instruments and trade repositories.

Investment firms that rely on the reporting exemption are still obliged to transaction report directly any transactions they execute themselves or orders transmitted to non-EU firms.

Data Protection

Firms will need to consider the data protection implications of sharing identity information of clients, traders and advisors with any third party to whom they have delegated the transaction reporting. Data protection concerns or regional restrictions may force some buy-side investment firms to transaction report directly.

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