20th April 2017

New BBA guidance on MiFIR transaction reporting short selling indicator

Written by Robert Driver, Policy Director, Capital Markets

Transaction reporting helps supervisors detect potential market abuse. It is a key element of the current MiFID rules, but is set to get considerably more complex under the new MiFIR reporting framework.

MiFIR significantly increases the scope of reportable financial instruments, while the number of reportable fields has risen from 15 to 65.

Some of these new requirements are relatively simple, but others will be considerably more problematic. One new requirement which falls into the latter category is the need for firms to indicate whether a trade is a “short sell” or not, a rule which has resulted in a great deal of debate within the industry.

The BBA’s transaction reporting working group is one of the leading forums in the industry, and is currently undertaking granular analysis of the new MiFIR requirements. The short selling requirement has been a key focus of the working group, and it has developed recommended approaches to a number of the key issues.

One of the most challenging requirements of MiFIR is the need to calculate real time positions. However, it is widely acknowledged by industry participants that it will be technically challenging, if not impossible, to flag whether a specific transaction is short at legal entity level in real time.

We found that although firms are required to identify transactions which are sold short at the time of their execution, this does not necessarily imply the need for a real-time solution, saving firms a significant technical and practical challenge. We detail in our guidance a number of different approaches which firms could consider when tackling this issue.

Another issue which was unclear was whether firms needed to identify short sales when acting under exemptions from the Short Selling Regulation, and we found that MIFIR does indeed place a clear obligation on firms to calculate and report short positions even if a firm has an exemption.

The BBA tackled a number of other issues including the requirement to “determine on a best effort basis the short sales transactions in which its client is the seller”, winding back a trade included in the determination, and how to determine which party should identify the short selling indicator.

You can find a copy of the BBA guidance here.

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