On 9 April 2024, the Financial Conduct Authority (FCA) published Market Watch 78. In this edition of Market Watch, the FCA shares its observations on the completeness and accuracy of instrument reference data (IRD) under onshored Regulatory Technical Standard (RTS) 23.

The FCA notes that this edition of Market Watch will be relevant to UK recognised investment exchanges (RIEs), multilateral trading facilities (MTFs), organised trading facilities (OTFs) and systematic internalisers (SIs), and that it may also interest investment firms, credit institutions, approved publication arrangements and approved reporting mechanisms.

Background

UK trading venue operators and SIs are required to provide the FCA with details of the financial instruments traded on their platforms, to enable the FCA to understand the nature and characteristics of products traded by market participants. The data is used by the FCA to validate and supplement the transaction data it receives under RTS 22. Issues with IRD therefore impact the FCA’s ability to monitor markets effectively, as well as affecting the completeness and accuracy of transaction reports, transparency data submitted under RTS 1RTS 2RTS 3, and the FCA’s enrichment of UK EMIR trade reports for monitoring systemic risk.

Data quality processes

Market Watch 78 outlines the 10 most common IRD rejection messages and the number of records rejected for each in 2023. It also urges firms to refer to the RTS 23 Reporting Instructions for further information on the relevant validation rules.

Invalid issuer LEI: Best practice

The FCA flags that submitting firms should have processes to ensure they submit accurate issuer legal entity identifiers (LEIs). It highlights that in the limited circumstances where issuers do not hold LEIs (or the issuer LEI has become invalid, retired or merged), trading venues can submit their own LEI in Field 5, to ensure the timeliness of and completeness of their reports. However, the FCA draws attention to the fact that this practice should be used as a last resort only when an accurate issuer LEI is not available.

Invalid instrument classification: Best practice

The FCA expects submitting entities to report discrepancies around the use of Classification of Financial Instruments codes issues by the relevant National Numbering Agency (NNA) in RTS 23 submissions. These discrepancies should be reported to the relevant NNA and firms are also expected to ensure their submissions are updated when the NNA applies a correction.

Cancelled instrument reference data

If an entity submits IRD to the FCA in error, the Market Watch highlights that the entity should cancel it. The FCA expects all entities to have processes to cancel records when required, although the cancellation process should not be used to terminate reportable financial instruments.

Use of dummy values

The FCA flags that it has observed dummy or default values in IRD submissions, and warns that this does not align with the relevant reporting requirements. The fields where the FCA has seen dummy values include:

  • Instrument classification.
  • Name of the index/benchmark of a floating rate bond.
  • Identifier of the index/benchmark of a floating rate bond.

If firms are unable to obtain relevant data, they should raise this with the FCA as soon as practicable; however, the FCA expects this scenario to be exceptional. The FCA emphasises the importance of firms having processes in place to ensure accuracy of their IRD submissions.

Breach notifications

Market Watch emphasises that trading venues and systematic internalisers are required to notify the FCA promptly where they identify IRD that is incomplete or inaccurate. The FCA is concerned that some IRD submitting entities may not be notifying it when they identify issues, and highlights that any firm that becomes aware of issues affecting their IRD submissions should raise and submit a breach notification to the FCA’s Markets Reporting Team.

The Market Watch concludes with a statement that the FCA may conduct further work on the areas covered in the article to ensure firms take appropriate action.