ESMA MiFIR review report on the obligations to report transactions and reference data

ESMA MiFIR review report on the obligations to report transactions and reference data

Article 26(10) of MiFIR requires the European Commission (EC) to present a report to the European Parliament and the Council to assess the functioning of the transaction reporting regime under this Article. The consultation paper (CP) originates from the EC’s mandate to ESMA and was published last year.  This Final Report is submitted to the European Commission and is expected to feed into any review of the transaction reporting regime in MiFIR.

The proposals are substantive and the impact on firms will not be insignificant – we outline below the key headings impacting firms in the EU.  These are intended as headings only with a recommendation that firms read the entire report to obtain the full details behind each proposal, the legal basis and ESMA rationale.  The impact of the Final Report will require less significant change than the original full list of proposals.

  •  “ESMA proposed that in order to ensure data completeness for market abuse investigations and to ensure a level playing field for market participants, UCITS management companies and AIFMs providing one or more MiFID services to third parties should be subject to transaction reporting in accordance with Article 26 of MiFIR.”  Having reviewed the feedback ESMA considers that the proposal should be retained.

  •  “ESMA proposed that Article 26(5) should refer to ‘members or participants or users’ instead of ‘firm’, and read as follows: ‘The operator of a trading venue shall report details of transactions in financial instruments traded on its platform which are executed through its systems by any member, participant or user a firm which is not subject to this Regulation’.”  Having reviewed the feedback ESMA considers that the proposal should be retained.

  • “In order to ensure further clarity and consistency with RTS 22, ESMA proposed in the Consultation Paper that Article 26(8) should be replaced by the following: ‘An investment firm shall report transactions executed wholly or partly through its branch to the competent authority of the home Member State of the investment firm. The branch of a third country firm shall submit its transaction reports to the competent authority which authorised the branch. Where a third country firm has set up branches in more than one Member State within the Union, those branches shall define the competent authority that will receive all the transaction reports.’ In order to meet the obligations set out in Article 35(8) of Directive 2014/65/EU, a copy of the reports provided for under this Article shall also be transmitted to the competent authority of the host Member States of the in the transaction involved branches.’  ESMA’s intention was and is that firms report transactions, in which a branch is involved, to the home NCA only. The home NCA will make sure the host NCA will also receive the transaction report.”  Having reviewed the feedback ESMA considers that the proposal should be retained.

  • “ESMA considers that the reference in Article 26(1) to the ‘arrangements in order to ensure that the competent authority of the most relevant market in terms of liquidity for those financial instruments also receives that information‘ is too narrow and does not adequately reflect NCAs’ supervisory needs. Hence, in the Consultation Paper, ESMA proposed that this provision should be accompanied with a more general reference to the possibility for NCAs to share the information received under this article ‘where a request has been made’ and/or ‘the NCA has agreed to share the information’.” Having reviewed the feedback ESMA considers that the proposal should be retained.

  • “ESMA proposed that text of the amended Article 26(3) of MiFIR should read as follows: ‘The reports shall, in particular, include details of […]. For transaction carried out on a trading venue and Systematic Internaliser or an organised trading platform outside of the Union, the reports shall include a designation to identify the venue where the transaction has been executed and a transaction identification code generated and disseminated by the trading venue or Systematic Internaliser. For transaction carried out on a trading venue and Systematic Internaliser, the reports shall include a designation to link all transactions pertaining to the same execution of the financial instrument on the trading venue or Systematic Internaliser. The member or participant or user of the trading venue or Systematic Internaliser as well as all the investment firms being part of the transaction chain shall disseminate the code generated by the trading venue or SI down the transaction chain.’”  Having reviewed the feedback  ESMA considers that its proposals regarding the dissemination of the TVTIC or a separate code along the transaction chain and the creation of a TVTIC by SIs should not be retained, whereas the one concerning the generation of the INTC should be retained.

  • “Article 26(3) of MiFIR prescribes to include in the transaction reports the details of a ‘designation to identify the computer algorithms within the investment firm responsible for the investment decision and the execution of the transaction’.  ESMA proposed to keep this data element. Having reviewed the feedback ESMA considers that the proposal should be retained.

  • ESMA considers that its proposal to remove the short sale flag should be retained.

  • “The current regime under Article 26(3) requires investment firms to indicate in the report whether the transaction was executed under a pre-trade waiver. In particular, this obligation only covers the waivers applied to transactions executed on trading venues in accordance with Articles 4 and 9 of MiFIR. ESMA considers that the waivers regime also apply to transactions in non-equity instruments executed through an SI in accordance with Article 18(2) of MiFIR. Under this Article, NCAs may waive the quoting obligations for SIs for illiquid non-equity instruments. However, under the current regime, if a pre-trade waiver applies to these transactions, such waiver will not be indicated in the respective transaction report.  ESMA proposed to extend the scope of this obligation to the transactions in non-equity instruments executed on a Systematic Internaliser.”  Having reviewed the feedback ESMA considers that the proposal to extend the obligation to transactions in nonequity instruments executed on an SI should not be retained.

  • “ESMA proposed that Article 26(4) of MiFIR should be amended as follows: ‘Investment firms which transmit orders shall include in the transmission of that order all the details as specified in paragraphs 1 and 3. Instead of including the mentioned details when transmitting orders, an investment firm may choose to report the transmitted order, if it is executed, as a transaction in accordance with the requirements under paragraph 1. In that case, the transaction report by the investment firm shall state that it pertains to a transmitted order. If the investment firm chooses not to report the transmitted order and provides all the mentioned details when transmitting orders, the investment firm to which the orders are transmitted shall report the transaction in accordance with paragraph 1 unless it transmits the order to another investment firm.’”  Having reviewed the feedback  ESMA considers that its proposals should not be retained.