Update

UK Business Conduct Regulation...cont'd.

	Transaction Reporting Update

The FSA published a special issue of Market Watch, which focused on the changes to transaction reporting under MiFID. Please click to see a copy.

The publication set out, in particular, the approach the FSA intended to take regarding implementation: topics addressed include:

•  the implementation date

•  branch reporting

•  the transitional regime - commodity/foreign exchange/interest rate derivatives

•  the transitional regime - debt and equity derivatives

•  reportable instruments

•  unique client identifiers

•  contingency arrangements

It is, therefore, important that FOA members review this edition of Market Watch in detail.

With respect to transaction reporting of give-up business, following ICMA/BBA (Joint Associations) Transaction Reporting Working Group and FOA meetings, an industry position has been agreed. An working party, which includes investment banks, independent clearing brokers and executing brokers and incoming EEA firms, has met with the FSA to discuss the preferred approach to resolving the current uncertainties and the next steps and hopes to take these discussions forward in the near future.

As members will be aware, there was also a last minute flurry of publications/communications in respect of transaction reporting:

1. CESR published the new arrangements for reporting security and commodity derivatives, as foreshadowed in the FSA's Market Watch i.e

•  Regulated Markets will report non-securities derivatives including commodity derivatives;

•  a new identification system will be introduced for securities derivatives on some Regulated Markets not using ISINS (the Alternative Instrument Identified or AII).

For further details please click here .

1. The FSA published a statement which confirmed that it would adopt CESR's new arrangements for reporting transactions in non-securities derivatives and would discuss implementation issues with market operators in the UK: see http://www.fsa.gov.uk/pages/Library/Communication/Statements/2007/cesr.shtml.

1. The FSA wrote to Anthony Belchambers regarding the FSA ‘s expectations regarding the transaction reporting of give-up transactions on derivatives markets: a copy of this letter has been circulated to members.

1. The FSA published additional, helpful, information on transaction reporting on its web pages, including details of the 5 th November cutover, the list of approved ARMS and FAQs for portfolio managers: click here to see .

1. The FSA published a list of identification codes of the regulated markets and MTFs for which it is the Home Member State competent authority and the central counterparties of those trading venues. The FSA will update this list periodically.

1. CESR published three databases listing, respectively, identification codes for Regulated Markets, Multilateral Trading Facilities and Central Counterparties. These lists have been published by CESR for the purposes of identification of a counterparty to a transaction for transaction reporting purposes, in accordance with Article 13(2) of the MiFID Level 2 Regulation. Click here to view.

The FSA has also published the consolidated revisions to SUP 17 Transaction Reporting; given the number of recent amendments, we advise members to review carefully. Please click here to view.

If your firm has any unanswered questions in respect of transaction reporting or has identified points requiring further clarification, please contact Jane Green or Devrim Baki .

In respect of the first issue, the FSA proposed that the rule should apply to "all business that could fall within the scope of MiFID and current domestic regulation, including that done by EEA firms in the UK under top-up permissions."

The FSA noted that: "A small number of EEA firms currently have top-up permissions for - mostly - commodity derivatives business (the vast majority of these firms are EEA credit institutions that carry on this business through their UK branches). Most of this business is likely to fall within the scope of MiFID. Where a firm's home state has implemented MiFID, this business can be brought within firms' MiFID passports from 1 November. Where a firm's home state has not implemented MiFID, we will regard its top-up permission as valid after 1 November (where a firm continues to act in accordance with its permission). All UK branches of passported EEA firms will be subject to MiFID conduct of business requirements (through the FSA's implementing rules) in relation to their passported business conducted within the UK, so applying these requirements also to MiFID business conducted under top-up permissions should not amount to a significant extra burden."

In respect of the second issue, the FSA proposed that the rule be limited to: "‘MiFID minimum' Level 1 and Level 2 requirements to ‘fill the gap' created by non-implementation of those requirements by a firm's home state, principally to enable us to meet our consumer protection and market confidence objectives. This encompasses requirements in MiFID Articles 12-14, 18 to 22, 24, and 26 to 30, and the associated provisions of the Implementing Directive."

The FOA participated in a Joint Associations' response to this consultation: a copy of the response is available from the FOA website. The FSA confirmed their proposal and gave feedback on responses in PS07/18.