Back in the year 2007, MiFID I came up with the concept of a harmonized transaction reporting regime that covered entire Europe with an objective to detect and investigate potential market abuse. MiFID II Transaction Reporting that swung into action in 2018 expanded on the scope and intention of the existing transaction reporting regulation. It consists of very tight guidelines that seek to iron out challenges in the market. Regulators are not only required to shield against gross market abuse but also to enhance market integrity.
The regulation poses a lot of challenges for the industry, flexing its mandate on 65 fields that require reporting concerning existing and new existing asset classes. This is really one of the top priorities of the regulators. Several firms have had tons of fines for incomplete or inaccurate reporting under MiFID I. Moreover, a number of the national competent authorities have put forth a new statistic, stating that firms could expect a 50% shoot in the fine per breach within the construct of their jurisdictions.
MiFID II significantly increases the scope of the transaction reporting regime in a way that includes additional asset classes that were previously not within the scope of MiFID I but on the other hand covered by EMIR scope. MiFID II notably expands the definition of a transaction in such a way that it does not only apply to market-side trades but broadens to cover any transaction that has a reportable financial instrument.
The MiFID II rules for the transaction reporting sprout from the regulation and henceforth, all member states will be required to conform to these requirements across Europe. ESMA is the watchdog and is responsible for market integrity. Its main aim is to mitigate the chances of market abuse. This principle supersedes in the definitions of a transaction as well as execution. It’s key to note that these proposed definitions apply only to transaction reporting. The execution of a said Transaction, for reporting purposes, is not confined to transactions closed between the firm and the final intermediary but is a vast concept than just market-side trades.
In conclusion, MiFID II Transaction Reporting significantly increases the number of reporting fields from the initial 24 in MiFID I to 65 fields. Nevertheless, only 13 of the initial batch are retained as real-time regulator’s purpose to meticulously standardize the requirements and make them way more stringent. All this is in an aim to refine the market system.
