FCA releases Market Watch 78 focusing on instrument reference data under RTS 23

The FCA has released Market Watch 78, which focuses on improving data quality for instrument reference data. At face value the audience for this newsletter appears to be trading venues or systematic internalisers (SIs). However all MiFIR investment firms should take a keen interest in its contents because the standards expected for the submission of IRD apply equally to other reporting obligations.

The FCA highlights that:

• Issues with IRD impact its ability to monitor markets effectively
• IRD is key to its ability to conduct effective market oversight
• IRD enables it to understand the nature and characteristics of products traded by market participants.

Interestingly the regulator notes that UK EMIR trade reports are enriched with IRD to monitor for systemic risk. This is a step beyond just validating and supplementing of transaction reporting submissions (RTS 22) and transparency data (RTS 1,2,3).

Data quality processes

The FCA highlights its concerns with firms’ data quality processes, including where firms are repeatedly submitting identical records after receiving a rejection message. This should be a lesson for all firms submitting reference data as the FCA says that this could indicate weakness in firms’ exception management processes. The FCA is also concerned about, and presumably monitoring, the late submission of IRD as this can prevent investment firms from submitting transaction reports.

In addition, the FCA draws attention to the fact that IRD submitting entities should include a review of warnings generated by the Market Data Processor (MDP). It can be inferred that the regulator does not believe this review is robustly taking place. In particular, the FCA focuses on Warning Message INS-128. Firms should be developing a check for inconsistencies with their submissions and including a process to resend the corrected record, or discuss the record with the relevant trading venue.

The FCA provides a table with top 10 rejection codes by count and drills into best practice for firms to deal with a couple of the topics – Invalid issuer LEI and Invalid instrument classification.  A particular pattern on the table is validation errors related to the relationship between the first trade date and other key date fields. 

Across all regimes the expectation is that firms have arrangements in place to identify incomplete or inaccurate data, and report data in a timely manner, beyond reviewing rejections. The FCA further notes that there is prevalent use of dummy or default values in IRD submissions, highlighting specifically:

• instrument classification
• name of the index/benchmark of a floating rate bond
• identifier of the index/benchmark of a floating rate bond.

Breach notifications

In the final section of the newsletter, the regulator says it has received 135 breach notifications since 2018 and is “concerned that some IRD submitting entities may not be notifying us when they identify issues”.  When submitting IRD, firms should therefore make sure they have the same robust breach notification process in place for notifying the Markets Reporting Team across both RTS 22 and RTS 23.

Cancelled instrument reference data

The newsletter also highlights that only 23 entities have cancelled records in its FIRDS system over the past two years.  This means that most IRD submitting entities haven’t used this functionality.  The FCA says it expects “all entities to have processes to cancel records when required”.

What does Market Watch 78 mean for firms?

This Market Watch clearly highlights the importance the FCA attaches to ensuring high IRD quality as it underpins the integrity of the data for conducting effective market oversight.

“Firms must have processes to ensure that their IRD submissions are accurate” – Market Watch 78

It may also prompt firms without a RTS 23 reporting obligation to investigate whether their transaction reporting submissions match the static characteristics of the instrument’s reference data, and question whether they are highlighting potential data quality issues as a result.

At Kaizen, our RTS 23 Accuracy Testing managed service provides firms with full visibility of instrument reference data reporting issues across the topics mentioned in Market Watch 78 and beyond, ensuring trading venues and SIs meet their reporting obligations and effectively manage their reporting risks.

• For a free healthcheck of your RTS 23 instrument reference data, please contact us.
• Read the newsletter in full on the FCA’s website.