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Market Watch 78 – Market Conduct and Transaction Reporting Insights

The routinely released Market Watch delved into key supervisory observations concerning the completeness and accuracy of instrument reference data (IRD) under RTS 23 in Market Watch 78. This edition is particularly relevant for UK Recognised Investment Exchanges, Multilateral and Organised Trading Facilities, Systematic Internalisers, investment firms, credit institutions, and firms involved with approved publication and reporting mechanisms.

Objectivus is well-placed to help firms enhance the accuracy of their IRD as detailed in this post as part of their transaction reporting obligations. We can advise on areas of concern or uncertainty in relation to the areas detailed below and can aid in streamlining your reporting processes which will ensure you are able to maintain the integrity of your firm’s reporting. More information on IRD can be found at this link.

Key Supervisory Observations on IRD

IRD plays a crucial role in the FCA’s regulatory oversight, enabling them to monitor the nature and characteristics of financial instruments traded across platforms. The accuracy of this data is vital for validating transaction reports and enhancing transparency under various regulatory standards (RTS 1, RTS 2 and RTS 3), and enriching UK EMIR trade reports to monitor for systemic risks.

Common Issues and Best Practices

Recent observations have highlighted several prevalent issues in IRD submissions, including:

  • Data Quality: For instance, INS-128 warnings generated by the Market Data Processor (MDP) indicate discrepancies between submitted data and information from the relevant trading venue. Such warnings, while not rejections, signal potential data quality issues that need addressing.
  • Rejection Codes: The FCA highlighted the 10 most frequent IRD rejection messages, such as invalid legal entity identifiers (LEIs), records being reported twice in the same file and inconsistencies in mandatory field reporting. It’s essential for firms to manage these rejections effectively to avoid repeated errors and ensure timely submissions.
  • Dummy/Default Values: Firms are commonly using dummy or default values in their IRD submissions (including in their instrument classification, name of the index/benchmark of a floating rate bond and identifier of the index/benchmark of a floating rate bond), which does not align with the reporting requirements. If firms are unable to obtain relevant data, they should raise it with the FCA as soon as possible.

Best Practices for Handling IRD Submissions

  • Issuer LEI Accuracy: Submitting firms should have processes in place to submit accurate LEI’s. In cases where an accurate issuer LEI is unavailable (for example, where the issuer does not hold an LEI, or the issuer LEI has become invalid, been retired, or merged) trading venues may temporarily use their own LEI. However, this should be a last resort, with a strong preference for updating records with the correct issuer LEI as soon as possible.
  • Instrument Classification: If the Classification of Financial Instruments (CFI) codes do not align with the ISO 10962 standard, firms should report the discrepancy to the National Numbering Agency (NNA) and update their submissions following any corrections.

Operational Recommendations

  • Cancellation and Error Handling: Firms should have robust processes to cancel erroneous IRD submissions correctly. The use of this functionality should be accurate and in line with regulatory expectations, avoiding misuse for terminating reportable instruments.
  • Breach Notifications: It is imperative that firms notify the FCA promptly through the Markets Reporting Team at mrt@fca.org.uk if they identify any incomplete or inaccurate IRD submissions. Timely notification is critical for maintaining the integrity of market data.