Field 62 in the MiFIR Transaction Report: Short Selling Indicator (SSI) is causing some confusion as to when it should be populated.
The requirement to disclose short sale transactions via transaction reports is defined in Article 11 of RTS 22. This applies to:
transactions being short sales in whole or in part,
sales on behalf of clients (determined on best effort basis),
individual and aggregated orders.
The MiFIR validation rules are implementing a hard validation (xml schema type) only on the format of the value when the SSI field is populated.
No validations have been implemented to check whether the field should be populated or remain blank, therefore reports with missing values can be accepted by ARMs/NCAs.
Control Now has analysed available regulatory texts and implemented a set of validations to ensure correct population in your reports.
Entities in scope
The SSI should be populated to reflect the position of the party disposing of the instrument (identified in seller field). As per Article 11 and Rule 192, this includes:
when executing entity (investment firm) acts as a seller or
when client of the investment firm acts as a seller or
transfers between 2 clients (populated from transferer’s perspective) or
when reporting received transmitted order (meeting Article 4 conditions).
If counterparty reported in seller field does not fit into any of the categories above - the SSI field should remain blank.
Applicable instruments
A common question is whether the SSI should be populated only in respect to shares or debt instruments or all instruments.
RTS 22, field 62 states the field should be populated when “short sale” is concluded. However later in the description box it states; “This field is only applicable when, the instrument is covered by Regulation (EU) No 236/2012”
Article 1 of Regulation 236/2012 on short selling defines its scope as applying to:
transferable securities and derivatives admitted to trading,
derivatives with underlying admitted to trading,
EU member states sovereign debt instruments (and their derivatives).
At this point, the only clear exclusion of scope is around debt instruments. The scope does not cover debt instruments (and derivatives of thereof):
issued by third countries,
issued by private parties.
However, Article 2.1.(b) of the aforementioned Regulation defines a term ‘short sale’ as relating to share or debt instruments and clearly excludes derivatives in point (iii).
Does this mean that the SSI is not applicable and should remain blank for derivative transaction reports?
Control Now interpretation
The matter of population of the short selling indicator field comes down to understanding whether the RTS 22, field 62 applies to:
only “short sells” Article 2.1.(b) Regulation (EU) 236/2012)
to any transaction on an instrument covered by Regulation (EU) 236/2012 (as defined by Article 1 Regulation (EU) 236/2012)</li>
Control Now interprets the requirement as applying to the definition of a “short sell” only.
The examples provided in section 5.15 of MIFID Guidelines and general market consensus (e.g. BBA now UK Finance Guidance released in April 2017) also support this interpretation.
We have reached out to ESMA for confirmation.
ESMA response
We have received a response to our query on the 30th of July from ESMA Market Data Policy Team.
ESMA clarifies that: "Article 2 of the Regulation (EU) No 236/2012 includes shares and debt instruments in the definition, but also credit default swaps, which are derivatives."
Control Now has updated SSI related validations to reflect the above.
FCA Statement
On 13/01/2022 FCA has released a statement informing reporting firms that it is not expecting Errors and Omissions forms to be submitted in regards to issues with SSI and it will not take actions against firms that report incorrectly. This applies until the future of the SSI is been determined, and FCA's position will be reviewed.
The future
In the Final Report to Consultation Paper on MiFIR review report on the obligations to report transactions and reference data ESMA concludes that the proposal to remove Short Selling Indicator should be retained. Proposal received unanimous support from the respondents due to fact that with the current limitations of reporting on best efforts basis, NCAs are not in a position to utilise the SSI information in their mandates of supervision and market surveillance.
Control Now is not aware of any planned divergence on this from the FCA.