FCA Market Watch- Strategy Trades

Market Watch 43, issued by the FCA on 5 October 2012, details finalised guidance on the transaction reporting of strategy trades.

When reporting to the FCA, all transactions that comprise the combined execution of multiple legs should not be reported as a single trade; instead, each reportable leg should be reported as a separate transaction. The individual legs of the strategy trades should be reported with the correct venue identification of each individual leg, irrespective of where the order was placed.

The FCA uses the example of strategy trades involving stock derivatives and the underlying equity. Whilst such trades may have been placed on the derivatives exchange, the cash equity leg should be reported with a trading venue reflecting the cash equity exchange.

Whilst the guidance has been effective from 15 August 2012, Market Watch 43 is a timely reminder of a potential pitfall with strategy trades on Aii exchanges. The FCA will not accept ISIN based cash equity transactions with an Aii trading venue code. So the trading venue of the cash equity leg of strategy trades on London Liffe should be populated with ‘XOFF’ rather than the ‘XLIF’.
The full text of Market Watch 43 can be found here.