The RegTech Glossary

Approved Publication Arrangement

Under MiFID II, regulated firms are required to publish post-trade reports in near real-time to the market. APAs provide the service of publishing the trade reports on behalf of investment firms - enabling them to meet their obligations under Articles 20 and 21 of MiFIR. The APA scheme replaced the Trade Data Monitors (TDM) regime under MiFID I which was introduced to make sure that third parties publishing data have adequate arrangements in place to ensure the quality of the data. The list of current APAs can be found here.

Appointed Representative

Sanctioned by the FCA, an appointed representative (AR) is a firm or person who runs regulated activities and acts as an agent for a firm directly authorised by the FCA. This firm is known as the ARs 'principal'. This relationship is contractual and the principal firm takes regulatory responsibility for the appointed representative, and must ensure it meets FCA requirements.

Approved Reporting Mechanism

Under MiFID II, investment firms are required to report their transactions to a National Competent Authority (NCA) on a T+1 basis. ARMs provide the service of reporting these transactions on behalf of MiFID Investment Firms to a NCA or ESMA ((Article (4)(1)(54) MiFID II)) and are required to validate the Transaction Reports (Article 26 of MiFIR). These entities, along with CTPs and APAs, are a relatively new category and did not exist under MiFID I. The list of current ARMs can be found here.

Best execution refers to the duty of investment firms that are carrying out orders on behalf of clients to ensure the best execution possible for those orders. MiFID II has increased the Best Execution requirements for financial firms who now have to provide evidence that they were acting in their clients’ best interests on all trades and orders. This requires them to submit RTS 27 and RTS 28 reports and to carry out Transaction Cost Analysis (TCA) on their trading activity. 

Classification of Financial Instrument

CFI Code is the code for classifying financial instruments in order to identify the type and characteristics of each financial instrument in accordance with international standards. The International Standard Organization (ISO) established and maintains the CFI Code.

Commodity Futures Trading Commission

An independent agency of the US Government that regulates the US derivatives markets. The CFTC oversees the derivatives markets by encouraging their competitiveness and efficiency, ensuring their integrity, protecting market participants against manipulation, abusive trading practices, fraud, and ensuring the financial integrity of the clearing process.

Consolidated Tape Provider

A CTP is an entity authorised to provide the service of collecting trade reports from regulated markets (MTFs, OTFs and APAs) and consolidating them into a continuous 'consolidated tape' - providing price and volume data per financial instrument.

Dodd–Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank is a US federal law that regulates the financial markets and protects consumers. It was enacted in 2010 to prevent a repeat of the 2008 financial crisis and introduces a wide array of rules and obligations on financial services firms. 

European Market Infrastructure Regulation

Originally introduced in July 2012, EMIR is a regulatory framework aimed at reducing the systemic risk for derivatives and OTC derivatives by introducing a range of rules and reporting requirements on investment firms. The framework has evolved over time, most recently in July 2019, but still upholds the same core principles:

• The obligation for clearing via a CCP should certain levels be breached (Article 4)
• Reporting requirements for derivative contracts (Article 9)
• Clear definitions on Financial and Non-Financial counterparts (Article 10)
• Risk mitigation techniques (Article 11) 
• Penalties for breaching EMIR obligations (Article 12)
• Oversight of conflict rules (Article 13)

European Securities and Markets Authority

ESMA is an independent EU authority whose mission is:

• Assessing risks to investors, markets and financial stability
• Completing a single rule book for EU financial markets
• Promoting supervisory convergence
• Directly supervising specific financial entities

ESMA replaced the Committee of European Securities Regulators (CESR) in 2011.

Financial Conduct Authority

The FCA is the independent financial regulatory body of the United Kingdom, regulating the conduct for 59,000 financial services firms and financial markets in the UK. It is also the prudential regulator for over 18,000 of those firms. The aim of the FCA is to make markets work well for individuals, businesses and for the economy as a whole.

Financial Industry Regulatory Authority

An independent, non-governmental organisation that writes and enforces the rules governing registered brokers and broker-dealers in the US.

Financial Instruments Reference Data System

FIRDS is a data collection infrastructure established by the ESMA in order to efficiently collect data from Trading Venues and NCAs. The data is made available on the ESMA website in accordance with MiFIR requirements.

Legal Entity Identifier

A LEI is a 20-character alpha-numeric code based on ISO standard 17442 that establishes a clear and unique identification of a legal entity. The code is developed and maintained by the International Organisation for Standardisation and became a mandatory field in Transaction Reporting under MiFID II.

Market Abuse Regulation

MAR came into effect in 2016 and aims to increase market integrity and investor protection across the securities markets for capital raising. MAR builds on the Market Abuse Directive (MAD) which was established in 2002 and eventually adopted in 2005, extending the scope to new markets, platforms and behaviours.

The main objective of MAR is to heighten investor protection and make European markets more secure by introducing clearer rules around insider dealing, unlawful disclosure of inside information and market manipulation. It also imposes new rules on how firms must prevent and detect these.

Markets in Financial Instruments Directive

MiFID represents a set of financial regulations in the European Union that aim to safeguard and enhance the efficiency of the financial markets. The second iteration of MiFID (MiFID II) came into effect on January 3rd, 2018, expanding the remit of the original directive, but preserving the overall aims to:

• Migrate more trading on to regulated venues
• Provide transparency on tradable securities (RTS23)
• Provide accuracy of timestamps (RTS25)
• Regulate High Frequency Trading (HFT)
• Afford regulators the ability to more effectively regulate MAR

Market in Financial Instruments Regulation

MiFIR is an EU regulation that accompanies MiFID II. The regulation enforces many obligations on firms. One of the key requirements is pre and post-trade transparency - requiring firms to publicly disclose certain quotes and trades.

National Competent Authority

EU Member States have to designate competent authorities to act as a single contact point for the purposes of various Directives and Regulations. Their overriding purpose is to facilitate and accelerate cooperation and the exchange of information. Under MiFID II's firms transaction reporting requirements, firms need to report to their "home state" NCA either directly or via an approved ARM. The NCA in the UK is the FCA.

Regulatory technical standards

Regulatory technical standards provide detailed specifications surrounding a particular regulatory mandate or obligation. For example, MiFID II established RTS articles 27 and 28 which deal with best execution.

RTS 27 is a quarterly requirement for execution venues, market makers and systematic internalisers (SI) to publish best execution reports.  RTS 28 on the other hand is an annual reporting requirement where firms must disclose their top 5 execution venues or brokers and summarise execution quality achieved.

US Securities and Exchange Commission

An independent agency of the US federal government holding the primary responsibility for enforcing the federal security laws and regulating the securities industry. Their three aims are to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation.

Securities Finance Transaction Regulation

SFTR is a body of European legislation for the regulation of securities lending and repo. It aims to enhance the transparency of the securities financing markets by requiring those who enter into securities financing transactions (SFTs) to report the SFT to a trade repository. SFTR is being introduced in a phased approach starting April 2020 for Credit institutions, investment firms and relevant third country firms.

Senior Managers and Certification Regime

Transaction Cost Analytics

TCA is used to establish if transactions were executed at favourable prices to the end-investor and is intended to provide actionable insight and enhanced visibility for compliance and management. It is often split between pre- and post-trade. The Best Execution requirements under MiFID II increased the pressure on firms to scrutinise their practices. On the back of this we have seen the emergence of new vendors and tools that provide TCA services. 

Trade Repository

Defined under EMIR, Trade Repositories are responsible for the receipt of daily trade reports for derivatives and OTC derivatives. They are defined as the central collector and maintainer for the records of reported derivatives. The implementing technical standards for Trade Repositories entered in to force on 19 December 2012.

Unique Trade Identifier

Under the EMIR Reporting Framework, a UTI is a mandatory field designed to identify a derivatives contract. There are additional provisions which detail which counterpart has the obligation to generate the UTI and how it must be communicated between counterparts.