Trade vs Transaction Reporting
In the previous blog, we have highlighted the overview of Transaction Reporting. The reporting requirements of financial firms have changed in a significant manner with an increased focus on the transparency of data to the public. One of the reasons for this requirement is the updated framework of Markets in Financial Instrument Directive ll (MiFID II). MiFID II is designed with the objective of European financial markets more transparent and boosting investors’ confidence. It is important to understand trade reporting and transaction reporting and how they both are different.
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Trade Reporting:
Trade reporting is the process of announcing the trade or issue of financial security to the appropriate regulator. It is a mandatory process. It is performed with the purpose of increasing transparency in the financial market. It helps the regulator know what is happening in the market, which may help find wrongdoing.
Transaction Reporting:
Transaction reporting refers to the reporting of detailed information of each major currency exchange, withdrawal, transfer, or payment made by, to, and/or, through the financial institutions. This reporting of transactions helps in conducting supervision and supporting the work of regulatory authorities. In transaction reporting, reports must be made through an Approved Reporting Mechanism (ARM). The ARM facilitates the services of validating a firm’s data and reporting the details of the transactions to the relevant authorities on behalf of the firm.
This article aims to highlight the difference between Trade and Transaction Reporting.
Trade vs Transaction Reporting:
- Meaning:
- Trade reporting is the process of announcing the trade or issue of financial security to the appropriate regulator.
- Transaction reporting refers to the reporting of detailed information of each major currency exchange, withdrawal, transfer, or payment made by, to, and/or, through the financial institutions.
- Audience:
- Trade report is prepared with the aim of publishing data to the public. Thus, the public is considered as the audience.
- Transaction report is prepared to submit the information to appropriate regulators. Thus, regulators are considered the audience.
- Purpose:
- The purpose of trade reporting is to ensure transparency and fairness in the market. It is also performed to improve the transparency of how security prices are quoted and formed.
- Transaction reporting aims to detect and prevent market abuses. It shows that there is a greater emphasis on the client and anyone working on behalf of the client.
- Reported to:
- The trade reports are submitted to APAs. APA is the abbreviation of Approved Publication Arrangement. APAs provide services of publishing trade reports on behalf of investment firms. The APAs are selected by the financial institutions which will be submitting the report. Once the trade report is submitted, APAs are responsible for making the data available to the public as real-time as possible.
- On the other hand, transaction reports are submitted to Approved Reporting Mechanisms (ARMs). The ARM facilitates the services of validating a firm’s data. It also facilitates the reporting of details of the transactions to the relevant authorities on behalf of the firm. After collecting transaction reports, ARMs instruct firms about whether the reports are structured correctly. If they find any error or missing information or duplicate submission, they send a rejection message to the firm.
- Content/Elements:
Trade report includes various elements such as:
- Trading date and time
- FII Code i.e. Financial Instrument Identification Code
- Price
- Price currency
- Venue of execution
- Quantity
- Transaction identification code.
Transaction report includes the following:
- Information about the financial instrument traded
- The firm actioning the trade
- Details about buyer and seller
- Date and time of execution
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- Frequency of the Reporting:
- One of the key differences in Trade and transaction reporting is related to its frequency. Trade reporting operates in near real-time. Because, trading venues and certain investment firms, volume, and price are required to be published within one minute of the trade completed.
- Transaction reporting operates with the ‘T + 1’ requirement. Here, ‘T’ refers to transaction day, and the number 1 shows after how many days a report is required to be sent.
- Who has the obligation?
- For the purpose of trade reports, sellers are obliged. In case, if the buyer is a systematic internalizer, he also has the obligation of submitting a trade report.
- On the other side, in a transaction report, the investment firm has the obligation to submit the transaction report.
Final thoughts:
The reporting requirements of financial firms have changed in a significant manner with an increased focus on the transparency of data to the public. Both trade and transaction reporting are important to understand. It may look similar but there are significant differences between both of them.
Author: Hetvi Shah
About the Author: Hetvi is a BBA(Finance) graduate. She is currently pursuing an MBA with Finance specialization. She has a keen interest in Financial Market, Financial Management, and Financial Analysis.
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