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17 October 2015
| Regulatory servicesTransaction reporting

MiFID II transaction reporting options

Many organisations will be reviewing the recent publication of the RTS on MiFID II with trepidation. There's a lot of detail, complexity and with each revision comes the challenge of monitoring the changes. Amidst all this complexity there are some fundamentals that can be defined, such as what the options are for performing the actual transaction reporting.

In this article we cover the three main approaches to transaction reporting under MiFID II, namely, Self-Reporting, reporting via an ARM and Delegated Reporting. In a further article we'll go into more detail on the last of those options, Delegated Reporting.

Self-Reporting - If a firm is only reporting transactions that it has executed on its own behalf then it can report these transactions directly, without the involvement of any third party. The firm would need to establish, and maintain, interfaces to each of the National Competent Authorities (NCA) that it needs to report to.

Report via an Approved Reporting Mechanism (ARM) - A firm can engage with a third party commercial organisation that has been approved by the relevant NCAs to perform the duty of collecting, validating and reporting the data. It needs only interface with the ARM who then interfaces to each of the NCAs.

Delegated Reporting - A firm can delegate its reporting process (but not the obligation or responsibility) to another party. Typically, this is done buy side to sell side, to clearing brokers, or other third parties involved in the transaction chain, who already have a large proportion of the reportable data. In this scenario, firms will already have a number of interfaces with their counterparties.

So how to make the decision on which approach to take?

Well there are some broad rules that can assist:

As a firm, if you have agreed to report on behalf of clients, then option 1 is not available to you, and whilst there are no regulatory restrictions on delegating that client reporting to yet another party, it’s unlikely that you would follow that course. Therefore, you’re probably going to report via an ARM.

If a firm is only reporting its own transactions, then self-reporting may seem like an obvious choice. Consider however the burden of interfacing to each NCA that the firm must report to and the risk of not having an ARM interposed to perform data validation and catch any mistakes, it’s likely that the case for self-reporting will only make sense for a very few, if any, firms.

That leaves reporting via an ARM versus delegated reporting. (Strictly speaking, delegated reporting will be via an ARM as well, it’s just that as a firm performing the delegation you’re likely to have less engagement with the ARM, you’ll leave all that up to the firm you delegate to.)

Given that with delegated reporting a firm still has the responsibility to ensure that the data is accurate and reported in a timely manner, it only makes sense to delegate your reporting if that process is less onerous than reporting yourself via an ARM. There are two scenarios where that could be the case: firstly, for smaller, specialist firms that can delegate to a small number of counterparties, ideally one; secondly, for firms that can delegate to a number of their sell-side counterparties that provide a common mechanism for them to provide and monitor their data through.

So in conclusion, buy side firms need to understand who they might delegate to and what is on offer to them before deciding to delegate or report themselves via an ARM; other firms are likely to report via an ARM already, with a very few making the business case for self-reporting. Deutsche Börse will support you on all three alternatives.