Newsletter on market conduct and transaction reporting issues
April 2024
About this edition
In this Market Watch, we describe some of our recent supervisory observations, covering the completeness and accuracy of instrument reference data (IRD) under RTS 23. This will interest UK:
- Recognised Investment Exchanges (RIEs)
- Multilateral Trading Facilities (MTFs)
- Organised Trading Facilities (OTFs)
- Systematic internalisers (SIs)
Our observations may also interest investment firms, credit institutions, approved publication arrangements (APAs) and approved reporting mechanisms (ARMs).
Instrument reference data
Background
UK trading venue operators and systematic internalisers are required to provide us with details of the financial instruments traded on their platforms. IRD is key to our ability to conduct effective market oversight. It enables us to understand the nature and characteristics of products traded by market participants. We use the data to validate and supplement the transaction data we receive under RTS 22.
Issues with IRD impact our ability to monitor markets effectively. They also affect the completeness and accuracy of transaction reports, transparency data submitted under RTS 1, RTS 2, RTS 3, and our enrichment of UK EMIR trade reports for monitoring systemic risk.
Data quality processes
IRD submitting entities must have methods and arrangements to identify incomplete or inaccurate data and report data in a timely manner, consistent with RTS 23 Articles 2 and 6. These processes should not be limited to rejections and warnings received.
INS-128 warnings are generated by the Market Data Processor (MDP) when IRD submitted by an entity under RTS 23, for a given instrument, differs from the values provided by the Relevant Trading Venue for that same instrument. These warning messages are not rejections. But to identify potential data quality issues, IRD submitting entities should include a review of these warnings in their processes.
The table below identifies the 10 most common IRD rejection messages and the number of records rejected for each in 2023. This table is not an exhaustive list of all IRD rejections. Firms should refer to the RTS 23 Reporting Instructions for further information on the relevant validation rules.
| Rejection code | Count of rejections | Description |
|---|---|---|
| INS-112 | 72,466 | The legal entity identifier (LEI) provided for ‘Issuer Identifier’ is invalid. |
| INS-104 | 51,232 | The following records are reported twice in the same file. |
| INS-105 | 37,708 | The Market Identifier Code (MIC) provided for ‘Trading Venue’ is invalid. |
| INS-121 | 29,852 | The Maturity Date and Date of admission to trading or date of First trade are not consistent. |
| INS-102 | 10,965 | The following mandatory fields are not reported: ‘List of RTS 23 number Id of missing fields’ |
| INS-103 | 5,421 | The following non-applicable fields are wrongly reported: ‘List of RTS 23 number Id of N/A field(s)’. |
| INS-101 | 2,138 | The Classification of Financial Instruments (CFI) code is not valid. |
| INS-110 | 989 | The value provided for Notional Currency 1 is invalid. |
| INS-119 | 691 | Termination date is earlier than First Trade Date. |
| INS-123 | 484 | Expiry date is earlier than First Trade Date. |
Some firms are repeatedly submitting identical records after receiving a rejection message. This could indicate poor exception management processes. We expect firms to have effective processes to monitor and manage their rejections promptly. Late submission of IRD can prevent investment firms from submitting transaction reports.
Invalid issuer LEI: Best practice
Submitting firms should have processes to ensure they submit accurate issuer legal entity identifiers (LEIs).
We understand this may occasionally not be possible at the time of submission. This includes where the issuer does not hold an LEI, or the issuer LEI has become invalid, been retired, or merged.
In these limited circumstances, trading venues can submit IRD using their own LEI in Field 5 (Issuer LEI) to ensure the timeliness and completeness of their reports.
This practice should be a solution of last resort when an accurate issuer LEI is not available. Trading venues should have processes to report the issuer LEIs as soon as one becomes available.
Invalid instrument classification: Best practice
In Market Watch 70, we highlighted that Classification of Financial Instruments (CFI) codes issued by the relevant National Numbering Agency (NNA) should be used in RTS 23 submissions.
In some instances, the CFI issued by the NNA may not conform to the ISO 10962 standard. This will trigger an INS-101 rejection message. In these cases, the IRD submitting entity may amend the CFI reported to conform to the ISO 10962 standard.
We expect the submitting entity to report the discrepancy to the relevant NNA and ensure their submissions are updated when the NNA applies a correction.
Cancelled instrument reference data
If an entity submits IRD to us in error, they should cancel it. As of February 2024, 23 IRD submitting entities cancelled records in FCA FIRDS since March 2022. This means that most IRD submitting entities have not used this functionality.
Not all IRD submitting entities will have needed to cancel erroneous records. But we expect all entities to have processes to cancel records when required. The cancellation process should not be used to terminate reportable financial instruments.
Use of dummy values
We have noticed dummy or default values in IRD submissions. This does not align with the relevant reporting requirements.
Fields where we have seen dummy values include:
- instrument classification
- name of the index/benchmark of a floating rate bond
- identifier of the index/benchmark of a floating rate bond
If firms are unable to obtain relevant data, they should raise this with us as soon as practicable. We expect this scenario to be exceptional.
Firms must have processes to ensure that their IRD submissions are accurate.
Breach notifications
Trading venues and systematic internalisers are required to notify us promptly when they identify IRD that is incomplete or inaccurate. Since 2018, and as of February 2024, we have received 135 breach notification forms for IRD. We are concerned that some IRD submitting entities may not be notifying us when they identify issues.
If your firm becomes aware of issues affecting its IRD submissions, a breach notification should be raised and submitted to the Markets Reporting Team at: [email protected].
We may conduct further work on the areas covered in our Market Watch articles to ensure firms take appropriate action.
Additional information on IRD.