Here are a selection of questions that are frequently asked for firms providing a service of portfolio management.
If you are unfamiliar with any terms, you may find the Glossary page useful.Frequently asked questions
When a firm providing a service of portfolio management relies on the SUP 17.2.2 G exemption, does it need to transaction report to the FSA?
SUP 17.2.2 G outlines the scenarios in which a firm providing a service of portfolio management is exempted from transaction reporting. Where a firm in the course of providing a service of portfolio management undertakes a transaction in an agency or principal capacity on behalf of a client on a discretionary basis, or does so having specifically recommended the transaction to the client, and the firm has reasonable grounds to be satisfied that another party (typically, the broker) will report to us, or another competent authority, the firm does not need to submit an additional report.
When will a firm have 'reasonable grounds' to be satisfied that another will report to the FSA or another competent authority?
As stated in paragraph 7.1 of our Transaction Reporting User Pack (TRUP), 'reasonable grounds' could include checking – at least once a year – that the other firm is still an investment firm that must report transactions.
Are the individual fund allocations to be reported if reliance is placed on the SUP 17.2.2 G exemption?
As we outlined in our Policy Statement PS07/2, when a broker reports a transaction executed on behalf of a client of a firm providing a service of portfolio management then the report the broker submits should identify the firm providing the service of portfolio management and not the underlying client. In this scenario, it is only necessary to report the bulk trade; the allocations for each respective client are not reportable.
When do reporting obligations arise for firms providing a service of portfolio management?
There are several scenarios in which a firm providing a service of portfolio management undertakes a transaction in an agency or principal capacity on behalf of a client, and SUP 17.2.2 G does not exempt them from reporting. These include the following:
- Where the broker is not a MiFID investment firm (and so will not be required to report the transaction to the FSA or another competent authority) and the financial instrument is admitted to trading on a regulated market or prescribed market.
- When the firm providing a service of portfolio management undertakes an inter fund transaction) without using a broker who is a MiFID investment firm.
- Where the transaction is reportable under SUP 17 but is not a transaction in a financial instrument admitted to trading on a regulated market and the broker is a non-UK MiFID investment firm. This covers areas where the UK is super-equivalent to the MiFID requirements. It includes transactions in OTC derivatives where the underlying instrument is traded on a regulated market or prescribed market and transactions in financial instruments admitted to trading on prescribed markets. In such circumstances, the non-UK broker is not expected to make a transaction report as the transaction is likely to be outside the reporting rules applicable in the broker's home state. Consequently, the firm providing the service of portfolio manager cannot rely on the exemption under SUP 17.2.2 G.
- Where the counterparty is another firm providing a service of portfolio management.
- When a firm providing a service of portfolio management undertakes a transaction in an agency or principal capacity on behalf of a client on an execution-only basis.
- In the event that a firm providing a service of portfolio management contacts an EEA broker to conduct a transaction in a reportable instrument on a non-EEA exchange, that broker may pass the order to a non-EEA broker to execute the trade. If the EEA broker is not itself entering into the transaction in an agency or principal capacity because the relationship with the firm providing the service of portfolio management has been given up to the non-EEA broker, then the firm providing a service of portfolio management, rather than the EEA broker, would have an obligation to transaction report.
- However, it would be perfectly permissible for the EEA broker to report this transaction either in its own name or the name of the firm providing a service of portfolio management so that the firm providing a service of portfolio management need not report directly. This would form part of an agreement which the firm providing a service of portfolio management may wish to agree with the EEA broker.
- Where an EEA broker agrees to report a transaction in is own name, as if it were acting as in an agency capacity, the transaction report should identify itself in the reporting firm field, the counterparty in the counterparty field (sometimes referred to as the counterparty one field) and the firm providing a service of portfolio management in the client/customer field (sometimes referred to as the counterparty two field).
- Where an EEA broker agrees to report a transaction in the name of the firm providing a service of portfolio management the transaction report should identify the firm providing a service of portfolio management in the reporting firm field, the counterparty in the counterparty field (sometimes referred to as the counterparty one field) and firm providing a service of portfolio management in the client/customer field (sometimes referred to as the counterparty two field).
How do I transaction report?
If a firm providing a service of portfolio management is unable to rely on a third party to meet its reporting obligations under SUP 17.2.2 G, it must arrange for the transaction to be reported via an Approved Reporting Mechanism (ARM) in accordance with the guidelines below.
Firms needing to report transactions undertaken in a principal capacity should contact the TMU via email at tmu@fsa.gov.uk or by calling the transaction reporting helpline on 020 7066 6040 for further guidelines.
- Where a firm providing a service of portfolio management undertakes a transaction in an agency capacity on behalf of a client on a discretionary basis and SUP 17.2.2 G does not exempt the firm from reporting, the transaction report should identify the firm providing a service of portfolio management in the reporting firm field. The transaction report should also identify the counterparty in the counterparty field (sometimes referred to as the counterparty one field) and the firm providing a service of portfolio management in the client/customer field (sometimes referred to as the counterparty two field).
- Where a firm providing a service of portfolio management undertakes a transaction in an agency capacity on behalf of a client on an execution-only basis, SUP 17.2.2 G does not exempt the firm from reporting. The transaction report should identify the firm providing a service of portfolio management in the reporting firm field, the counterparty in the counterparty field (sometimes referred to as the counterparty one field) and the client in the client/customer field (sometimes referred to as the counterparty two field).
- Where a firm providing a service of portfolio management undertakes an inter fund transaction where no broker who is a MiFID investment firm is involved, SUP 17.2.2 G does not exempt the firm from reporting. The transaction report should identify the firm providing a service of portfolio management in each of the reporting firm field, the counterparty field (sometimes referred to as the counterparty one field) and the client/customer field (sometimes referred to as the counterparty two field).
Firms needing to report transactions undertaken in a principal capacity should contact the TMU via email at tmu@fsa.gov.uk or by calling the transaction reporting helpline on 020 7066 6040 for further guidelines.
How has the FSA interpreted the CESR Level 3 guidance on transaction reporting?
The Committee of European Securities Regulators (CESR) has issued guidelines1 on what constitutes execution of a transaction for reporting purposes. These guidelines reflect the fact that there is difference of practice between CESR members on transaction monitoring and collecting information about the transaction execution process. The guidelines are designed to cater for these different practices with a view to identifying whether further convergence can be achieved after the implementation of MiFID. CESR members will collect reports of transactions by firms transacting directly with or as an execution venue (immediate market-facing firms) as well as any other transactions undertaken by an investment firm on its own accounts. The guidelines also provide that CESR members collect the information necessary to identify the ultimate client on whose behalf the transaction is undertaken or the investment firm which is dealing with the ultimate client where the CESR member does not have that information or cannot obtain it in a sufficiently timely manner.
Our regime is in line with these guidelines. So for firms providing a service of portfolio management, this means that, where a firm makes a decision to deal - either for itself or for its client - and enters into a transaction with a broker, we regard this as a trade that would be reportable. However, if the firm providing a service of portfolio management can rely on the SUP 17.2.2 G exemption, it would not be obliged to make a transaction report. This is because we, or another competent authority, would have the relevant information as a result of the transaction report made by the broker.
Our regime is in line with these guidelines. So for firms providing a service of portfolio management, this means that, where a firm makes a decision to deal - either for itself or for its client - and enters into a transaction with a broker, we regard this as a trade that would be reportable. However, if the firm providing a service of portfolio management can rely on the SUP 17.2.2 G exemption, it would not be obliged to make a transaction report. This is because we, or another competent authority, would have the relevant information as a result of the transaction report made by the broker.
1 CESR Level 3 Guidelines on MiFID Transaction Reporting (29 May 2007). This can be accessed on the CESR website.
What will be the FSA's approach to failures or defects in transaction reporting in the period after the new requirements enter into force?
We recognise that the implementation deadline has been a challenging one and, where firms have made best endeavours to comply, we will take a sensible and proportionate approach if there are glitches in reporting performance in the early period of the new regime.
How do I identify whether a market is a regulated market or not?
CESR has published a consolidated list of identification codes of all regulated markets and MTFs and any entities that act as central counterparties for such regulated markets and MTFs. This list will be updated on a periodic basis.
We trade outside of the EEA and MiFID requires us to report transactions involving financial instruments admitted to trading on a regulated market – what guidelines are available?
Our post-MiFID transaction-reporting rules outline the categories of instruments that are reportable. Firms are responsible for establishing an appropriate process for identifying what transactions they must report to us. We understand that firms are planning to either use data vendors to obtain a list of MiFID-reportable financial instruments and to use these lists to determine what transactions they must report to us, or to establish procedures for identifying reportable instruments which may result in over-reporting.
As we stated in PS07/2 there are no restrictions on over-reporting. We recognise there may be challenges in identifying whether an instrument traded outside the EEA is also admitted to trading on a regulated market. We also recognise there may be discrepancies between the categories of reportable instruments in our rules and the lists of reportable instruments provided by data vendors. As we said in our MarketWatch newsletter 22 (section headed 'Reportable Instruments'), in determining whether we would take action against a firm for a failure to report we will take in to account whether it has acted in good faith and has undertaken appropriate steps to identify and submit reportable transactions.
As we stated in PS07/2 there are no restrictions on over-reporting. We recognise there may be challenges in identifying whether an instrument traded outside the EEA is also admitted to trading on a regulated market. We also recognise there may be discrepancies between the categories of reportable instruments in our rules and the lists of reportable instruments provided by data vendors. As we said in our MarketWatch newsletter 22 (section headed 'Reportable Instruments'), in determining whether we would take action against a firm for a failure to report we will take in to account whether it has acted in good faith and has undertaken appropriate steps to identify and submit reportable transactions.
If I outsource a portfolio to another UK MiFID investment firm providing a service of portfolio management, do I still have an obligation to transaction report?
Where the management of a portfolio has been outsourced to another UK MiFID investment firm providing a service of portfolio management, then that other firm managing the portfolio must report to us, unless the exemption in new SUP 17.2.2 G applies.
If I outsource a portfolio to another EEA MiFID investment firm providing a service of portfolio management do I still have to report my transactions?
If you have outsourced the management of a portfolio to another EEA MiFID investment firm providing a service of portfolio management then it has an obligation to report to its relevant competent authority in compliance with the rules of that competent authority.
If I outsource a portfolio to a non-EEA firm providing a service of portfolio management do I still have an obligation to transaction report?
If this is the case, please contact TMU via email at tmu@fsa.gov.uk or by calling the transaction reporting helpline on 02070666040 for further guidance on their transaction reporting obligations.
What do I put in the venue identification field if I don’t know where my broker has traded?
Where the identity of the trading venue is not made available and the transaction is in a financial instrument admitted to trading on a regulated market or prescribed market then you must use the code XOFF. Where the identity of the trading venue is not made available and the transaction is in an OTC derivative the code XXXX must be used.
What do I put as the trading time if I don’t know when my broker traded?
Where the trading time is not made available, use the default time of 00:01:00 (this value will need to be presented in the format applicable to the ARM(s) used). Using this default time will ensure that these transaction reports are picked up during our monitoring of trading before a price sensitive announcement.
Do I need to report in specie transfers?
In specie transfers involve the direct transfer of assets into or out of a portfolio or trust. Often in specie transfers are used as a means of reducing the costs involved in the sale or purchase of assets. On this basis, we do not consider that in specie transfers should be reported, as long as they do not involve a change in beneficial ownership. In addition, there may be cases where a technical change in beneficial ownership occurs but there is no requirement for transaction reporting. For example, in specie transfers in and out of unit-linked insurance funds of assets involve a change in beneficial ownership since the assets are owned by the insurance company and the policyholder only has contractual rights valued on the assets. Nonetheless, we would not require reporting of such transfers. If you are in any doubt as to whether a particular transfer should be reported, please contact the Transaction Monitoring Unit.
