Zen and the Art of Transaction Reporting

The FSA has published Market Watch 39 (MW39) which contains confirmation that Zen, which will replace the existing Sabre system used by the FSA for market transaction analysis, will go live later this year.

The enhanced capabilities of Zen will impact upon firms’ transaction reporting in that the new system will support transactions identified using the Alternative Instrument Identifier (Aii).

Currently, as mentioned in e.g. Regulatory Roundup 11, firms are not obliged to report (but can do so voluntarily) securities derivatives that do not use an ISIN (a list of markets employing ISIN as a unique identifier can be found via the link provided).

This will change and all firms have to be compliant with the reporting of Aii transactions no later that 13 November 2011 (‘hard go-live’), although reporting can begin with effect from 8 August (‘soft go-live’).Note from MW39 that there will be changes in some of the validation rules.

Firms that transaction report using the FSA’s TRS system via manual keying shouldn’t need to make any changes to their systems as the TRS interface will be updated to allow such firms to send details of Aii transactions. However those firms that submit details to TRS via either web upload or system to system will need to consider system enhancements; the link will provide further assistance. Firms that make use of other reporting mechanisms e.g. Omgeo should contact their system operator.

It is worth reminding firms looking to the transaction reporting exemption in SUP 17.2.2 (portfolio management exemption) that under certain scenarios the portfolio management firm cannot rely on the exemption.

One common example would be when the broker being used is a non-UK MiFID investment firm. This is because the FSA transaction reporting regime is super-equivalent to MiFID. The Directive applies reporting requirements in respect of transactions in ‘financial instruments admitted to trading on a regulated market’ (regardless of whether the transaction is actually effected on a regulated market) whereas the Handbook also requires reporting in respect of transactions on a prescribed market(such as AIM) and in certain OTC derivatives (see SUP 17.1.4 for details).As such it is likely that the transaction would be outside the reporting rules applicable to the broker’s home state.

Another example would be when a portfolio management firm contacts an EEA broker to conduct a transaction in respect of a reportable instrument on a non-EEA exchange. If the broker gives up the order to a non-EEA broker to execute then the reporting obligation would fall on the portfolio management firm. Having said that, it would be permissible for the EEA broker to report the transaction and the FSA suggest that this could form part of the agreement between the firm and its EEA broker.

MW39 also advises that the FSA is currently reviewing the Transaction Reporting User Pack (TRUP) with the intention of updating it. The FSA would welcome any comments or input from firms (tmu@fsa.gov.uk).

Market Watch 38, a link to which can be found in Regulatory Roundup 28, also concerned transaction reporting changes, including the need for firms to have a BIC.