Reporting systems are already buckling under the weight and complexity of new compliance demands, and yet more requirements are on the way. Trade and transaction reporting regimes are set to expand significantly in 2017 when the Markets in Financial Instruments Directive II (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR) come into effect. Other new reporting frameworks – to be introduced or currently in development – include REMIT (EU regulation on wholesale energy market integrity), due to come into effect on 7 October 2015, and SFTR (proposed EU regulation on securities financing transactions) which is currently going through the EU legislative process. In this new context, financial services companies need to continually monitor these forthcoming regulatory developments to see how their business and reporting obligations will be affected. Adapting to the new legislative initiatives, in particular MiFID II and EMIR, typically leaves many firms asking why now, what will come next and how much will it cost?
Scope of reportable instruments
MiFID II/MiFIR builds upon the list of financial instruments originally defined under MiFID I rules, enlarging the scope of pre-trade and post-trade transparency requirements to both equity-like instruments (i.e., depositary receipts, ETFs and certificates) and non-equity instruments (i.e., derivatives, bonds, structured finance products and emission allowances) transacted on a trading venue (i.e., a regulated market (RM), organised trading facility (OTF) or multilateral trading facility (MTF)). In turn, these transparency requirements will need to be adjusted, not only for different types of instruments, but also for different trading activities, such as central order book, quote driven, periodic and hybrid auction trading systems. The MiFID II and EMIR regulatory framework will also capture economically equivalent contracts (or “look-alikes”), extending transparency to new heights to provide disclosure for purposes of systemic risk. To simplify the story, increased transparency seems to be the new market norm. According to Deloitte, the number of instruments caught under new regulations will go up from about 6,000 equities to 100,000s of financial instruments.
The information that must be disclosed to the competent authority by the close of the next working day is also set to increase in scope and prescription. For instance, the 23 data fields to be reported under MiFID I jumped to 65 in MiFID II. This number will grow further under REMIT and SFRT. Interestingly, transactions reports will need to identify both the client and the trader/algorithm behind the investment decision and execution process. This means that investment firms that receive and transmit orders will be required to provide such details for any orders they transmit, unless they want to report the transactions themselves (which is a permissible alternative). Neil Vanlint, managing director of EMEA and Asia at GoldenSource, says that “Post-trade, the breadth of data required to meet reporting obligation will increase significantly, putting huge strain on existing data management processes and systems”.
It seems that trade and transaction reporting requirements will undoubtedly become more and more onerous over time. This article takes a general look at a sample of the latest reporting obligations, but firms will need to embrace a longer list of burdensome requirements – a list that will continue to lengthen.