By: Christopher Cardace
The intent of the initial Markets in Financial Instruments and Derivatives (MiFID), implemented in 2007, was to control the way stocks, bonds, derivatives, and commodities were traded, cleared, and reported. This increased regulatory oversight drew many European traders into “dark”, high frequency, and algorithmic trading strategies, which concealed the volumes and prices of their deals. The end result was that derivatives were overlooked until 2008.
The Dodd-Frank Act and the European Market Infrastructures Regulation (EMIR) took aim to uncover these “dark” strategies by forcing greater transparency on the trading activity of un-cleared derivative instruments.
In response, SS&C PORTIA added 42 fields at the transaction level to capture fields mandated by Dodd-Frank and EMIR:
|Action type||Collateralization||Currency of the collateral||Execution timestamp||Unique ID|
|Beneficiary ID||Commercial activity||Currency of the Mark to Market valuation||Financial nature of the counterparty||Units|
|CCP LEI||Commodity base||Delivery end date||Interconnection point||Valuation time|
|Cleared||Commodity details||Delivery end time||Intragroup||Valuation type|
|Clearing member ID||Compression||Delivery point||Master Agreement type||Valuation of the collateral|
|Clearing obligation||Confirmation timestamp||Delivery start date||Master Agreement version||Venue of execution|
|Clearing threshold||Contract capacity||Delivery start time||Price/Time interval|
|Clearing timestamp||Contract with non-EEA counterparty||Delivery type||Secondary currency|
|Collateral portfolio||Corporate sector of the counterparty||Details of action type||Trading capacity|
We also added two customizable reports to capture regulatory information at both initiation and trade levels. These reports enable a user to report updates with corresponding transactions to their respective clearing firm. Since these fields are stored on the transaction level, they are included within the PORTIA self-auditing functionality so a user can report the changes associated with any of these fields throughout the lifecycle of the instrument.
Markets in Financial Instruments Directive 2 (MiFID II), implemented in 2015, expands upon the initial MiFID and EMIR requirements. MiFID II focuses on the trading venues framework and the structures in which financial instruments are traded. One of its key focuses is the importance of market participants’ compliance, audit, and risk management functions – particularly as they relate to the production and marketing of new financial instruments and reporting conflicts of interest (1).
Below are fields mentioned in MiFID II. Many of these fields, if not specifically covered through the addition of Dodd-Frank and EMIR, are part of the general fields available in PORTIA.
|Reporting firm identification||Venue identification|
|Buy/Sell indicator||Instrument code type|
|Counterparty identifier||Instrumental identification|
|Customer/Client identification||Instrument type|
|Trading day||Derivative type|
|Trading capacity||Underlying instrument identification code type|
|Quantity notation||Strike price|
|Unit price||Maturity date|
|Price notation||Transaction reference number|
|Price multiplier||Cancellation flag|
Within the application’s swap module, the fields are broken out based on ease of use. This allows for the use of freeform text when updating action details to choose up-to-date venues as specified within MiFID II for the “OTF”2. These additional fields are included for all asset classes within the PORTIA environment.
This regulation is still being updated, so you should always follow your own due diligence when complying with the new regulatory requirements. To learn more about PORTIA, request more information here.