Trade Reconciliation: Why you need it?

MiFID II reporting is now reasonably well established, the reporting issues are recognized by most companies; a topic we recently covered in our MiFID II blog.

The reporting process is becoming more streamlined with firms now looking for cost-effective ways to report and manage RTS 27/28, BestEx and Reconciliation.

The least known of these is probably Reconciliation. So, what is it, who has to do it and why is it important?

Trade Reconciliation is mandated in the regulation

 RTS 22 Article 15 clause 3:  Reconciliation

 “Investment firms shall have arrangements in place to ensure that their transaction reports are complete and accurate. These arrangements shall include testing of their reporting process and regular reconciliation of their front-office trading records against data samples provided to them by their competent authorities to that effect”.

How many smaller Investment firms have fully considered this element of MiFIR or even larger ones for that matter? According to the FCA very few have requested data from the Market Data Processor (MDP).

Why is this?

 Could it be:

  • They don’t know about it
  • Don’t know how to do it
  • Can't analyze the data which is in .xml and not easily readable
  • Wouldn’t be able to reconcile if they did have the data
  • Insufficient staffing to cope short or longer term
  • Still struggle with more basic issues with MiFID and view this as a next stage challenge

My guess is more than one of these reasons applies to almost every firm out there. Send me your thoughts on what the underlying reason is – I would be very interested in hearing your perspective on this topic

Why it is important we reconcile with the regulator's data?

While comparing the number of transactions sent vs. the number of transactions accepted by the regulator, we can identify many reporting issues including identifying rejections or discovering records being missed. In many cases, a field-by-field comparison is required to solve the issues. A simple example of this can be an issue with the trade size. In a client’s trading system, there may be X number of shares traded in a particular transaction and this X can, for one of many reasons, be altered on its way to the regulator as the trades pass through different systems and vendors. The regulator would still accept the transaction as they will not have a way to know that this is a wrong number, but only by comparing the transaction size field, will an issue with the reporting be identified.

We at Cappitech, as with transaction reporting for EMIR, MiFID, ASIC and others, make it very simple for our clients to run reconciliation all the way from their trading systems to the regulator data. For more information, take a look at our product brochure.

Download the Reconcilation Brochure

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Written By

John.Barratt

John.Barratt

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