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Trade Reporting vs Transaction Reporting - What's the Difference?

Written by Douglas Moffat

Trade Reporting vs Transaction Reporting - What's the Difference?

Trade Reporting and Transaction Reporting Under MiFID II

In January of 2018, the updated framework of Markets in Financial Instruments Directive (MiFID II) was rolled out, marking one of the biggest overhauls to Europe’s financial industry in decades. The new legislation, updated from 2007’s initial directive, took around seven years to put together and includes an intimidating 1.4m paragraphs of rules.

MiFID II is designed to make European markets more transparent and encourage investor confidence. It aims to address issues that have been identified since the initial MiFID law was implemented, and (as stated in Article 26(1) of Markets in Financial Instruments Regulation) address weaknesses and close loopholes that were exposed in the financial market crisis. This includes strengthening investor protection, improving market efficiency and reducing the risks of systematic market abuse.

MiFID II: Trade reporting vs transaction reporting

Within MiFID II, is a clear desire for the industry to move away from traditional trading over the phone and onto electronic systems, which offer better opportunities for audit and surveillance. New reporting measures put forward both in MiFID II and MiFIR (Markets in Financial Instruments Regulation) require certain information to be made public almost immediately. These regulations state that, in order to comply, firms must timestamp trades down to the microsecond. Other aspects of the regulation focus on a mandatory seven-year storage time for data, or requirements for evidence that brokers offered the best available price for trades.

The reporting requirements of financial firms have changed significantly with this increased focus on data transparency. Because of this, it’s crucial to understand the differences in trade reporting vs transaction reporting. Each method of reporting varies significantly when it comes to the client information required and the speed at which it needs to be submitted.

This article will explain the differences in trade reporting vs transaction reporting, the relevant changes between MiFID I and MiFID II, and the external services you’ll need to keep your firm compliant.

Trade reporting

The new requirements of trade reporting in MiFID II are designed to resolve issues around the quality and availability of data. This is one of the key differences in trade reporting vs transaction reporting: trade reporting operates in near real time. For trading venues and certain investment firms, the volume and price are required to be published within one minute of the completed trade of equity or similar products. For non-equity products, the information needs to be published within 15 minutes of the execution of the transaction.

Under MiFID II, investment firms are required to report basic details of their trades almost immediately, so that the information can be circulated in the market. The near real-time broadcasts of trade information is set to improve the transparency of pricing and offer greater insight into how prices are quoted and formed.

Submitting a trade report

Investment firms are obliged to send reports whenever they carry out transactions for products, whether for their own accounts or on behalf of clients. The data required in the reports include:

  • The trading date and time
  • Financial instrument identification code
  • Price
  • Price currency
  • Venue of execution
  • Quantity
  • Transaction identification code

These reports need to be submitted to an Approved Publication Arrangement (APA) of the firm’s choice, a person authorised to publish trade reports on behalf of the firm.

The APA – a function that didn’t exist under the first MiFID legislation – is then required to make the information public as soon as technically possible. APAs must circulate the information in a way that ensures fast market-wide access, and in a format that means that the data can be easily merged with data from other sources. The information needs to be published on a non-discriminatory basis, and available free of charge 15 minutes after publication.

Transaction reporting

Transaction reporting, on the other hand, has a number of differences. A crucial difference between transaction reporting and trade reporting is that transaction reporting is more relaxed with how quickly a report needs to be sent. Transaction reporting carries a T+1 requirement – T stands for the transaction day, and the number 1 illustrates how many days later a report needs to be sent.

Another difference in trade reporting vs transaction reporting is the purpose of the report. While trade reporting focuses on ensuring transparency and fairness in the market, transaction reporting is primarily used to detect and prevent market abuse, meaning there’s a greater emphasis on the client behind the transaction, as well as anyone working on behalf of the client. This also means that any information won’t be made public.

In order for transaction reporting to be a success, it’s critical for regulation bodies like the Financial Conduct Authority (FCA) to have complete and accurate data. This includes information on the types of financial instruments, when and how they’re traded and by whom. Each transaction report needs to include, amongst other things:

Information about the financial instrument tradedThe firm actioning the tradeThe buyer and the sellerThe date and time the transaction was executed

Under MiFID II, required information for transaction reporting has grown to around 65 fields, to support the goals of transparency and improved data quality.

Submitting a transaction report

The last key difference in trade reporting vs transaction reporting is the legal entity you’re required to submit your reports to. In transaction reporting, reports must be made via an Approved Reporting Mechanism (ARM). The ARM provides the service of validating a firm’s data, and reporting details of transactions to the relevant authorities (for example, the FCA) on behalf of the firm. ARMs are authorised by the European Securities and Markets Authority (ESMA) and are required to store and maintain data, as well as make it available to financial regulators to analyse. Once a report has been submitted to an ARM, they will notify the firm if the report has been structured correctly, or send a rejection message if there are errors (for example, if required fields are missing).

Although ARMs aren’t required to submit data as quickly as APAs, they need to have effective policies in place so they can report the information as quickly as possible – no later than the close of the working day following the day of the transaction. MiFID II also has a number of regulatory obligations that ARMs are required to comply with, since they’re key to providing regulators with high-quality data. These obligations include the use of up-to-date technology and the prevention of conflicts of interest between clients.

Take the stress out of reporting with eflow

eflow’s most regulatory reporting solution TZTR recently underwent a significant upgrade. It comes with functionality for EMIR, MiFIR and SFTR reporting as standard, and can be configured to perform a variety of regulatory reporting tasks. For more information, get in touch and one of our representatives will provide you with additional information.