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The systematic internaliser (SI) regime, mandated by MiFID II, in a first step will become mandatory for equity, equity-like and bond instruments in September 2018, following ESMA’s release of the first official EU reference figures in August. Investment firms will then be able to determine their official SI status for the above mentioned asset classes. So far, firms have only been able to opt in as SIs.
To coincide with this, the Regulatory Reporting Hub is expanding its SI services to include SI identification and reference data reporting. The Hub already offers SI pre-trade reporting and Quality of execution services for SIs. It is also one of several Approved Publication Arrangements (APA) to partner with SmartStream Reference Data Utility’s (RDU) SI register.
The SI regime comes with some challenges. It applies to investment firms that deal over-the-counter (OTC) on own account on an organised, frequent, systematic and substantial basis. As SI status is triggered by reaching or exceeding specific thresholds, firms will have to continuously monitor their own SI status.
Once SI status is determined, there are a number of follow-up obligations. SIs have to make public quotes for certain (liquid) instruments which they trade as SIs. They must also provide quarterly reports demonstrating the quality of execution when trading with their clients. In addition, they have to provide their competent authorities with reference data relating to instruments, which they trade as SIs, where the underlying is traded on a trading venue.
The Regulatory Reporting Hub offers a comprehensive and expanding suite of services for (potential) SIs. This includes the SI identification service that matches your transaction data with EU reference figures, and provides you with daily reports on your prospective SI status.
After your SI status has been determined, the SI pre-trade reporting service helps you publish quote information in near real-time to the global data vendor network. Our Quality of execution reporting service compiles quarterly reports for you, seamlessly sourced from data submitted for OTC trade reporting and SI quote publication services.
In addition, instrument reference data reporting for affected SIs will be available from September onwards: end-of-day reports will be assembled based on descriptive data submitted for OTC pre- and post-trade reporting.
SmartStream RDU’s SI register is a centralised SI database that is significantly more granular than the ESMA SI register. Data entered into the register is automatically reflected in the Hub, independent of which APA the counterparty uses. It therefore eliminates the need to bilaterally communicate SI status to the trading partner as well as to the APA in trade messages.
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Please note: Starting March 2019 the SI regime will also become mandatory for derivatives, including exchange-traded commodities (ETCs), exchange-traded notes (ETNs), security futures products (SFPs), securitised derivatives, emission allowances and derivatives. ESMA has postponed the publication of SI calculations for derivatives until February 2019.