Absence of trader ID disclosures leading to Mifid II reporting failure

By Rebekah Tunstead | 3 September 2019

Uncertainty regarding reference data - particularly the identification of individual traders or decision makers in transaction reporting – is preventing compliance with the second Market in Financial Instruments Directive (Mifid II), according to a lawyer.

 “It has unwittingly led to a culture of not taking that reporting field as seriously because of the difficulties of complying with it accurately, in terms of its design and concept,” says the lawyer, who asked not to be named. “Partly because this is a novel reporting field, it doesn’t really make sense in terms of identifying the individual decision maker especially for large institutions where they would find it difficult to identify one person.”

To report a transaction under Mifid II a trade must be linked to a Legal Entity Identifier (LEI) or an identification code for non-Mifid firms. Once a firm has decided who should go into the report as the named decision maker or trader, the individual’s details must be properly inputted in the correct format. But neither identifying the individual trader nor ensuring that all relevant details of that individual are populated fully has been a priority, according to the lawyer.

“On larger desks it may not be that easy to identify a specific individual where trading is done in teams or groups,” says the lawyer. “You have to exercise a bit of judgement in terms of putting done somebody as a designated decision maker and trader.”

On August 27, the Intercontinental Exchange (Ice) Futures Europe published a circular on transaction reference data errors. The exchange was informing its members “of a new reporting framework” it will be implementing “to enable it to address current and historic gaps in its Mifid II order retention and transaction reporting.”

“The exchange is aware that there is both reference data which has not been provided and reference data which has been found to be invalid and instances of each need to be corrected, both historically and on an on-going basis,” the circular read.

The exchange is sending a file to each of its members which identifies all instances where an Identifier Admin Application (IIA) short code or profile has been quoted but the underlying data is incorrect or missing. Underlying data required under the IIA process includes a Personal Identifier (PI) – either a passport or national identification – for non-Mifid investment firms.

Each national competent authority ranks the PI differently under the Markets in Financial Instruments Regulation (Mifir). For instance in the UK, a national insurance number is required.

Ice expects its members to add or correct the data in IIA “without delay”, according to the circular.

Nasdaq didn’t provide comment on whether it was experiencing similar issues. Deutsche Borse were unable to respond, and the London Stock Exchange declined to comment.

But this problem isn’t unique to Ice and will require a review from regulators according to the lawyer.

 “It is obvious that a lot of institutions are going to have issues, so people have been a bit more slapdash about it than what they should be, hence the number of errors being identified by ICE, and others as well,” says the lawyer.

“I think the regulators may have to revisit this issue. I wouldn’t be surprised if they do because of the challenges it presents, so they might simplify it.

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