COLUMN – VINOD JAIN | It needs to be improved – but just how? PostTrade 360°’s new columnist, industry analyst Vinod Jain, shares his reflections over a recent report from the UK’s FCA – suggesting a path forward.  

Global regulators formulated detailed regulations and guidelines for global investment firms to provide transparency in the trading (on- and off-exchange) data to assess the market risk. The data reported by investment firms to regulators also provides an opportunity for regulators to understand the nature and characteristics of products traded by market participants. 

On similar lines, the Financial Conduct Authority (FCA), the United Kingdom regulator demanded the UK trading venue operators and systematic internalisers (Sis) to provide the FCA with details of the financial instruments traded on their platforms. The financial instrument data serves as the basis to monitor the transaction reporting in real-time and by the end of the day by market participants to FCA. 

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A single securities reference data impacts more than one transaction as the same security can be traded multiple times. Thus, the magnitude of the impact of the change via securities reference data is crucial. Rightly so, instrument reference data quality needs to be improved, as reflected in the FCA Market Watch 78. The following statistics from the FCA lead to four interesting observations:

Observation 1: INS 112: Issuer LEI data is a challenge: Under the FCA’s MiFIR (Market in Financial Instrument Regulations) rules, an investment firm cannot trade with a counterparty without LEI. But the same rule does not apply to instrument issuers and thus tradeable instruments can be issued by an entity without LEI. This leads to adjustments on the timeliness and completeness aspect of their reports by submitting the venue’s LEI as Issuer LEI. There is no provision to update this record later. 

• Observation 2: INS 104 Duplicate records: In the world of tokenisation, cloud, and AI, duplicate records can be easily solved. Surprisingly, a quarter of rejections can be attributed to duplicate records. This identifies that data submitters have not implemented a feedback loop/ control on the previous record to identify the submission on the second record. 

Observation 3: INS-105 and INS 121: Trading Venue MIC and Dates are still puzzles: An invalid MIC and inconsistent date (though not offering inconsistent date meaning here) make up almost one-third of the rejections. MIC codes are readily available for validation and controls such as maturity date should be after trading date are highly common in traditional securities set up system. This highlights that though the system of records may have the correct data, it should be consistently disseminated across the organization for consumption. 

• Observation 4: INS-101: The cross-reporting of various identifiers should be eased: Securities identifiers such as ISINs and CFI (Classification of Financial Instrument) code can be linked, and the auto cross-referencing would remove the burden on investment firms to report various identifiers for the same security. 

FCA should extend such statistics by adding asset class and submission by systematic internalisers SI, Multilateral Trading Facility, and Other Trading Facility OTF. Hopefully, the missing data will be published. Maybe, first realising that missing data is required and then obtaining such data increases the value of data analytics. Finally, every data element and exceptions need a justification for its existence, or else they become obsolete soon.