Transaction Reporting

As mentioned in Regulatory Roundup 36, the FSA released a (consultative) update of the Transaction Reporting User Pack (TRUP).

The Regulator has now issued the finalised guidance (TRUP 3).

The final version largely follows on the lines of the consultative document, but following feedback there are some changes: some in an attempt to make things clearer and some representing a change of heart.

Chapter 9 provides guidelines for the reporting of certain trading scenarios including those involving portfolio managers. We are reminded that whilst SUP 17.2.2 provides an exemption for portfolio managers, when they can rely on the other party’s transaction reporting obligations, it is only applicable in certain circumstances – chief of which is that it is only applicable when exercising discretion (so, for instance, the exemption is not available to a portfolio manager if a transaction arises as a result of a recommendation made or where there are execution-only transactions).

For portfolio managers ‘the other party’ is typically the broker (note that the broker would not be reporting on behalf of the portfolio manager; the broker will simply have to meet its own reporting requirement in order for the portfolio manager to take advantage of SUP 17.2.2) and the portfolio manager need only have ‘reasonable grounds’ to be satisfied that the broker will report the transaction to the FSA or other competent authority. It is confirmed that the portfolio manager is not required to conduct due diligence to ensure that reports are being submitted accurately and that instead an annual check that the reporting firm continues to be a MiFID investment firm subject to transaction reporting obligations under MiFID will suffice.

Section 9.7.2 sets out various other scenarios when a portfolio manager cannot rely on a third party to report transactions, including when an EEA broker passes the order to a non-EEA broker to execute the trade. A concern was raised that it is not always clear to portfolio managers when this happens – and even when it was clear the confirmation might not be received in a timely manner. The FSA’s response is that portfolio managers should ensure they receive confirmation of the entity they are transacting with in a timely manner to meet the reporting obligation.

Over-reportingis covered (see 11.3) although the term may be interpreted differently amongst firms. In the eyes of the FSA ‘over-reporting’ refers to the reporting of instruments that are not reportable under SUP 17; the Regulator does not regard transaction reporting by portfolio managers that could rely on a third party to report as ‘over-reporting’. The FSA recognises that separating out transactions in non-reportable instruments may be costly and will allow firms to over-report transactions in non-reportable instruments. Having said that, the FSA will reject non-reportable instruments on Aii markets. The FSA also advises that firms should take reasonable steps to avoid over-reporting of non-reportable instruments.

On the matter of non-reportable instruments, section 3.2 confirms that transactions in commodity, interest rate and foreign-exchange OTC/listed derivatives are not reportable but securitised instruments that track commodities, interest rates and foreign-exchange are reportable. An example is provided of the different approach between Cocoa Futures contracts (not reportable) and ETFS Cocoa Exchange Traded Commodity (is reportable).

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