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Transaction Reporting User Pack (TRUP v 3.1)
Transaction Reporting User Pack: Upcoming Changes in TRUP v3.1
23 July 2015
Changes to transaction reporting requirements - are you ready?
An updated version of the Transaction Reporting User Pack (TRUP v3.1) was issued this February by the Financial Conduct Authority. Whilst the majority of TRUP v3.1 was effective immediately, there are a few changes due to come into effect next month on 6th August 2015.
What is a TRUP?
The user pack provides market participants with guidance on transaction reporting obligations in line with the requirements of the Markets in Financial Instruments Directive (MiFID). This will not only apply to FCA authorised firms, but market participants will also include firms from non-EU countries that trade upon UK markets, operators of an approved reporting mechanism or regulated market or multilateral trading facility (MTF).
FCA Clarifications for Transaction Reporting:
The revised TRUP now clarifies the following matters by the FCA:
- The transaction reports that a firm submits for its transactions must accurately reflect the change in position for the firm and its client(s) resulting from the transactions;
- The resultant transaction from a firm hitting its own order on a trading venue should be reported;
- How the unit price for different instruments should be reported;
- How to report the venue for a transaction; and
- What transaction reporting arrangements the FCA expects firms to have in place
Transaction Reporting changes 6th August 2015:
The following three sections of the Transaction Reporting User Pack v 3.1 are due to take effect on 6th August next month.
TRUP Section 7.5 Trading Capacity
This section covers the following trading capacity scenarios:
- Firms buying from the market on a principal basis and selling to the client under an agency arrangement;
- Firms’ executing an order from its own books when acting under an agency arrangement for the client;
- Firm’s executing a client order partly in an agency capacity and partly on a principal basis; and
- Firms executing an average price transaction for multiple clients with multiple fills where fills are of a mixed trading capacity.
TRUP Section 7.18.2 Regarding the use of ‘INTERNAL’ signifier
The FCA requires that in all cases where ‘INTERNAL’ is used in reporting, the FCA expects to see a movement into ‘INTERNAL’ and out of ‘INTERNAL’.
According to the FCA’s TRUP v3.1, the main purpose for the use of the ‘INTERNAL’ reference in the client/counterparty field for transaction reporting is to be able to link multiple market transactions to a client transaction and vice versa.
Additionally, it may also be used to indicate an internal transfer between the firm’s books to correctly reflect the change in position of a firm and its clients.
When to use the word ‘INTERNAL’ for transaction reporting:
An internal account can be used to link the executions within the market to the allocations for the client in cases where a firm:
- receives a number of orders from different clients and executes them with a single transaction; and/or
- receives a single order from a client that is filled by executing a number of transactions.
When an internal account, such as an aggregated account or an average price account is being identified, firms should use the word ‘INTERNAL’ in accordance with TRUP v 3.1.
Furthermore, when a firm is reporting an agency cross as two agency transactions then the word ‘INTERNAL’ can also be used.
Note, that the regulator has set out that its preference for reporting any agency transactions for one client in one security is done so in a single transaction report without using the internal account.
Where there is a transfer between a firm’s book when it is filling an order from its own books for a client and reporting an agency transaction, then the ‘INTERNAL’ signifier may also be used.
TRUP Section 9.1 Further Guidance on Internal Transactions
This section clarifies the difference between Intra-company transactions and Inter-company transactions:
- Intra-company transactions: These are wholly internal transactions that occur within the same legal entity and are purely internally transacted i.e. not executed on a trading venue (such as a Regulated market, prescribed market or MTF)
- Inter-company transactions: Are those transactions that take places between two or more legal entities within the same group.
Firms MUST report Inter-company transactions to the regulator, however Intra-company transactions undertaken within the same regulated firm are not required to be reported unless it is to correctly reflect the change in a firm’s or its clients position.
Where the beneficial ownership of the instrument changes, due to financial instruments transferred between clients in the same legal entity, then this must be reported.
An equivalent transaction report is also expected to be reported to the FCA when a firm hits its own trading venue, whether or not this is later cancelled by the trading venue or through clearing/settlement activity.
However, should a venue cancel two equal or opposite orders from the same member firm and as long as the cancellation is immediate and not after the publication of the trade report, then there is no transaction to report.
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